Fees for Second Mortgages

24/06/2020

There are different charges and fees that come with second mortgages, including broker fees, appraisals, interest and others. When applying for a second mortgage, as with any type of loan and mortgage arrangement, it is important to be aware of all the fees that could come with it, and be confident you can keep up with the costs associated with these, along with repayments of the loan itself.

How Much Does a Second Mortgage Cost?

A second mortgage can come with a variety of different charges and fees, which will inevitably alter the cost of the loan. Below is a table with some of the main fees associated with a second mortgage:

 

Charge or Fee

What the Fee Is For

Interest

The interest is added on as a percentage of the loan and is paid to the lender from the borrower for the privilege of borrowing the loan. The interest on a second mortgage will typically be shown as the APRC (Annual Percentage Rate of Charge), which is made to reflect the entire amount of interest paid throughout the loan period.

Broker fee

As the name suggests, the broker fee is a fee given to the broker for providing advice and arranging the loan.

Lender fee

The lender fee is another fee that is charged for both the processing and funding of a second mortgage.

Appraisal

A second mortgage is based off of the equity you hold in your home. However, the value of your home, and the equity you hold in it, can change overtime. An appraisal fee will cover the cost of having your home’s value assessed by a professional appraiser.

Missed payments

Loans can also come with fees for any missed payments. The charges for missed payments will vary from lender to lender, however, as a second mortgage is secured on your property, failure to keep up with repayments may lead to repossession of your home.

 

Before accepting a second mortgage, it is vital to first be aware of the true cost of the loan, and evaluate whether you can afford it.

How Do Second Mortgages Work?

A second mortgage works by securing the loan onto the equity you hold in your property, (equity being the amount of the property you own outright). Whilst you need to own a piece of the property outright, with a second mortgage, you do not have to be living in this property.

With a second mortgage, you can borrow anything from £1,000 and above, based off of the equity you hold in a property. For example, if your property is worth £300,000 and there is £200,000 left on the mortgage, you can borrow a maximum of £100,000 (the amount you own outright). Please note this example is only the case when you are the sole owner of the property.

As the loan is secured by the equity in your property, failure to keep up with repayments, just as a regular mortgage, could lead to repossession of your home. It’s therefore vital to ensure that you can manage repayments before taking out a second mortgage.

Reasons to Take Out a Second Mortgage

There are many different reasons as to why many people ultimately look to take out and utilise a second mortgage. Popular reasons for taking out such loans include:

To raise funds for personal expenses – Second mortgages can be used to fund personal expenses, such as home improvements, property renovations, school fees, bills, debt consolidation or even weddings.

When you are struggling to access other types of finance – This type of loan is also taken out by those who struggle to access unsecured borrowing methods (e.g. personal loans), the lender having security that the loan will be repaid by using equity as collateral.

When you have a high early repayment charges (ERC) on your mortgage – For those who have a high early repayment charge on their mortgage, a second mortgage may end up being cheaper than remortgaging.

When remortgaging may end up costing more – Remortgaging could also end up costing more if your credit rating goes down, increasing the interest on the whole mortgage. Taking out a second mortgage could be a cost-effective way around this, as you just pay for extra interest on the new loan rather than the entirety of the mortgage.

What If I Move House With a Second Mortgage?

If you move house and sell your old property, the second mortgage does still have to be paid off. If this is an issue, you may also be able to transfer the loan onto a new mortgage. This will all be subject to the lender, and the terms and conditions you have agreed upon in the loan agreement.

As a mortgage is secured against your home, your home could be repossessed if you do not keep up the mortgage repayments. Think carefully before securing other debts against your home.

Why not call us for free? 0800 0831593