What is a Second Charge Mortgage?
You may not have heard of a second charge mortgage before, or you may have heard the name but wondered what exactly one is? How is it different to a remortgage? What are the benefits? When would a secured second charge be a better option? This guide by the experts at The Second Mortgage Company will help you understand things better.
In a nutshell, a second charge mortgage is a loan that is taken out where the lender secures a charge, or mortgage against your property. To qualify for a second charge mortgage you must already have a first mortgage secured against your property. Also, as with other mortgages, your property is at risk of repossession in the event of non-payment.
A second charge mortgage doesn’t have to be just for property related purposes. They can be used to raise funds for most legal purposes including paying off existing loans/credit cards and reducing your monthly outgoings, home improvements, a car purchase, school fees, holidays, gift to children etc. The term of the loans is typically between 5 - 25 years.
Many people will use a second charge mortgage as a way of raising funds if they already have a competitive mortgage in place and don’t want to remortgage. Another reason could be that if you were to remortgage you may incur hefty early redemption charges when you settle your current first mortgage. Using a second charge mortgage avoids this.
At The Second Mortgage Company we have around 600 loan products to consider when assessing your application. We are second mortgage brokers and our lenders comprise of Financial Conduct Authority regulated banks and specialist lenders.
When assessing any application we have to consider three main points:
- The Loan to Value (LTV) that the lender is prepared to lend to. The LTV is the maximum percentage that the lender is willing to let you borrow. Generally the higher the LTV the higher the interest rate because it’s a higher risk to the lender.
- Credit history. We will initially carry out a “soft” credit search meaning that the search will show on your credit file but it won’t have any effect on your credit score. If you have a good credit history and have met all contractual repayments on other finance then the likelihood is that you will be offered a better interest rate than someone who has missed occasional repayments. While we do have lenders that will consider lending to applicants who have missed previous payments the rates are generally higher.
- Affordability. This is the most important factor when borrowing money. Each lender has their own in-depth calculation to ensure that you can afford the loan. They “stress” test mortgage payments meaning that they assess if you could afford the loan if interest rates increased by 2% or 3%.
Hopefully you now have a much greater understanding of what a second charge mortgage is, what they can be used for and the application process. If you have any further questions or would like to talk to us about the options available to you then please get in touch.