What is a second mortgage or second charge mortgage?

A homeowner can only have a second charge mortgage, if they already have a first mortgage. It is one way of borrowing extra money after you have taken out your main mortgage.

Why would you need a second mortgage?

It’s a means of borrowing against the value locked up in your home that may be suitable in some specific circumstances. Your main or first mortgage is usually the least expensive way to borrow money, as this lender gets first call on the equity of your home in the unfortunate situation of a repossession, whereas a second charge lender gets the spoils. As such second charge lenders take on more risk, and they charge a little more.

When should I consider looking into a second charge mortgage?

The two main considerations are:

• is it more cost effective for you
• would it provide funds where none are available by other means of borrowing

Here are some of the main examples where a second mortgage might be just be of help:

• If after taking out your main mortgage on a great rate, your credit rating has declined, perhaps due to ID Theft or a missed payment on a mobile phone contract. You need some money to help your children put down a deposit on their first home. It may be more cost effective to leave that loan in place and take out a second mortgage rather than re mortgaging the whole lot at a punitive rate.
• You decide, like many others, that it is better to extend your home rather than move and ask your main lender for a further advance, they say ‘No’ and you are tied in with high Early Repayment Charges for a couple of years. It may well be cheaper to take out a second mortgage for a couple of years and then re mortgage the whole loan to a new first charge lender once your Early Repayment Charge period has ended.
• You are recently self-employed, possibly a professional. You have gone from being say an employed dentist, to a self- employed dentist but have only a 9 months trading history. You need a piece of equipment for the surgery urgently. The first charge lenders require a minimum of 1 year’s accounts and tell you that they won’t lend for business purposes. A second charge mortgage could provide a solution.
• You want to purchase a second home and have plenty of equity in your main home. However you have a rather large mortgage on a very low lifetime tracker, set up on an interest only basis. When you speak to your lender about raising some money they tell you that borrowing money for a second property is not allowed. You look into the possibility of a re-mortgage and find that lenders do not issue loans on an interest only basis these days and the interest rate that you would pay is around 3 times what you are paying currently! A second charge could allow you to retain your interest only, low cost loan.

These are just some examples of how a second charge mortgage could help you raise some money, however there are lots of others.

Call our friendly team on 0800 316 5756 to discuss your options.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.