Reasons to Consider a Second Mortgage

15/01/2018

If you’re a homeowner and are looking to borrow funds, even for a non-property related reason, then a second charge loan is a great option to consider. There are a number of purposes that are accepted by second charge lenders - some of which might surprise you! This article highlights the six most common purposes we’ve come across when creating second charge loan proposals for our clients.

Home Improvements

A second charge mortgage can very often be a better and more cost effective funding option for securing funds for home improvements such as a new kitchen or loft conversion than settling your original mortgage. One of the key benefits of utilising a home improvement loan in the UK is that improving and upgrading your property, be it your place of residence or a buy to let property can see its value increase by potentially more than 20%. Popular uses of renovation finance include:

  • Loft conversions
  • Basements
  • Conservatories
  • New boiler and heating system
  • Property redecoration
  • Newly refurbished garden

Taking a second mortgage for the purposes of improving your property is very often cheaper than remortgaging the property to a new mortgage lender. It will not always be possible to remortgage to another mortgage lender, as it is usually much more than likely that you would incur high early repayment charges (ERCs) for leaving your current mortgage arrangemnt early and before its term is up.

Debt Consolidation

If you are looking to consolidate short-term unsecured debt then one of the options available to you is a second charge loan for debt consolidation. This can often be a hassle-free and cost-effective option so is worth exploring. For those that have numerous outstanding debts such as credit and debit cards, bills as well as other financial commitments, often the costs of servicing the debts in question can add up. Therefore, by consolidating numerous debts into a single, more affordable debt, your collective monthly repayments will be more affordable if not more manageable altogether.

You should always be aware though, that as with any secured loan or mortgage, if you fail to keep up with your monthly repayments, as with any second mortgage, you face having your home or property repossesed for the lender to be able to recoup the money owed.

Paying a Large Tax Bill

Raising funds to cover an upcoming tax bill can be stressful and many high street lenders do not accept the paying of a tax bill as a loan purpose, however in our experience second charge lenders will happily consider this a valid reason. If you can pay off your tax obligations, you will likely be in a generally more financially sound and stble situation and so a second mortgage may well be a serious and a sensible consideration.

Buying a Holiday Home

We’ve all seen TV shows such as ‘A Place In The Sun’ and dreamt of one day purchasing a holiday home in our favourite destination. That dream can come true! Many second charge lenders see this as an acceptable loan purpose, partially because an overseas property is in itself an asset and a form of collateral or 'security' upon which the loan in question may be secured. 

Payment of School or Education Fees

It is one of the more surprising ideas but nonetheless is a valid loan purpose with many second charge lenders. Give your little ones the very best education without the worry of how you’re going to cover the costs of school fees. You will likely already have a mortgage on your property at this stage in your life. Hence, a second mortgage may be the answer you need to unlock the potential of your property to fund your children's education and future.

Mortgages for Business Expansion

Raising the finance needed to take your business to the next level requires careful thought. An alternative to using high street lenders to secure funds to expand your business is to instead look at a secured second charge loan. Also, it may not be feasible to remortgage for this purpose, with many lenders in such cases charging high early repayment fees on your mortgage. To avoid having to cover the cost of these early repayment charges, it is worth considering a second mortgage on your property to help you push your business forward with the funding it needs.

This is just a small selection of loan purposes accepted by second charge lenders. There are many more and you’ve come to the right place to find out more about them. Our team would love to hear from you and help you secure your application, whatever the reason!          

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.

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