Second Charge Mortgages

A second charge mortgage, also known as a second mortgage or secured loan, is a type of loan secured against a property that already has an existing mortgage. It allows homeowners to access additional funds by using the equity in their property as collateral.

Here are some key aspects of second charge mortgages:

  1. Purpose: Second charge mortgages are typically used when homeowners need to borrow a substantial amount of money but do not want to remortgage their entire property or face early repayment charges on their existing mortgage. The funds from a second charge mortgage can be used for various purposes, such as home improvements, debt consolidation, education expenses, or business investments.
  2. Priority: The existing mortgage on the property is considered the “first charge” as it has primary priority over any other loans or charges on the property. The second charge mortgage is thus referred to as a “second charge” because it ranks behind the first charge mortgage in terms of priority. If the property is sold, the first charge mortgage lender is repaid first from the proceeds, followed by the second charge mortgage lender.
  3. Loan Amount and Repayment: The loan amount for a second charge mortgage is typically based on the available equity in the property, which is the difference between the property’s value and the outstanding mortgage balance. The borrower can access a percentage of this equity as a loan. Second charge mortgages usually have fixed monthly payments over an agreed term, typically ranging from 5 to 25 years.
  4. Interest Rates and Fees: The interest rates for second charge mortgages can vary and may be higher compared to first charge mortgages. The rates depend on factors such as the borrower’s credit history, the loan amount, and the loan-to-value ratio. It’s important to consider any associated fees, such as arrangement fees, valuation fees, legal fees, and broker fees when assessing the overall cost of the loan.
  5. Risk and Default: As with any mortgage, there is a risk of defaulting on payments. If the borrower fails to meet the repayment obligations, the property can be at risk of repossession by both the first and second charge mortgage lenders. Therefore, it’s crucial to assess affordability and ensure that the borrower can comfortably meet the repayment obligations of both mortgages.
  6. Financial Advice: It’s advisable to seek professional financial advice from a mortgage broker or adviser who specializes in second charge mortgages. They can provide guidance on the suitability of a second charge mortgage, compare options from different lenders, and help navigate the application process.

It’s essential to carefully consider your financial circumstances, including your ability to repay both mortgages, before taking on a second charge mortgage. Assess the terms, interest rates, fees, and potential risks associated with the loan to make an informed decision.

For Second Charge mortgage advice, you will be referred to a specialist lender.

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.