Can I Use a Second Mortgage To Pay For a Wedding?
Planning a wedding should be a fun and exciting time for those getting married. However, it can also be a huge financial burden and it can be hard to find the best and sufficient funding source for what should otherwise be a perfect day.
Second mortgages can be used for a wide range of purposes, including paying for a wedding and the associated costs.
The financial flexibility offered by a second charge mortgage means that they can be a good option when needing to fund big budget events such as weddings. With second mortgages, you can potentially borrow a large amount of money with relatively low interest.
It is important to remember that you should always consider the options before opting for any loan or financial product; a second mortgage or otherwise.
However, if you have a first charge mortgage on a property and own a significant portion of equity in the property in question, you can use a second mortgage to pay for a wedding or other expense as you need and see fit.
Second Mortgages For Wedding Costs
A second mortgage is a loan taken out against a property which has an existing mortgage and thus, you will of course need to already own a property and have a first charge mortgage on the property. The property and the first charge mortgage can be a joint mortgage with your partner, or may be in one person’s name, so long as there is enough equity in the property to secure a second mortgage against.
The owned equity in the property and ultimately the property itself acts as collateral on the loan, meaning that the property could be repossessed should you default on your second mortgage payments each month.
Money borrowed through a second mortgage for a wedding or otherwise is secured against a portion of the equity you and potentially your partner already own in the property. The loan will also be based on the value of the property as well as how much of your first mortgage you have already repaid.
Second mortgages offer a great deal of flexibility, making them very appealing to couples who own a property and need to pay for a potentially expensive wedding/ Second charge mortgages can be used for many different purposes and it is this flexibility that often increases their appeal.
They are also known for having lower interest rates than credit cards or other types of loan including remortgaging a property, which may come with early repayment charges. The lower costs are partly because they are secured by your property and so, borrowers in such cases are considered a lower risk by the second mortgage lender.
How Do Second Mortgages Actually Work?
Second mortgages are a second charge loan, running alongside a traditional, first charge mortgage. They work by utilising equity in your home or property and using it to secure a loan against. People choose to use second mortgages for a number of reasons including consolidating multiple debts or to pay for an expensive occasion such as a wedding, holiday or even in the case of home improvement loans.
To take out a second mortgage, an individual will already need to have a substantial amount of equity in their home, with a first charge mortgage already being paid. This will impact how much someone is able to borrow; the size of the second mortgage will also depend on the home’s value.
Do I Need a Good Credit Score For a Second Mortgage?
In order to get a second mortgage, you may need to show a minimum credit score in order to demonstrate creditworthiness to lenders.
A good or very good credit score will benefit your application for a second mortgage. It will also benefit you if you have a low debt-to-income ratio, as this shows lenders that you are more likely to be able to take on the additional repayments of a second mortgage alongside your existing financial obligations and first charge mortgage.
A higher credit score can also mean that you get better rates on the mortgage which will work out cheaper in the long run. If you need a second mortgage with bad credit, although it is still possible, lenders may be a little bit more hesitant to lend to you.
How Much Can I Borrow With a Second Mortgage?
The amount of money you can borrow with a second mortgage will depend on the amount of equity you have in the property.
‘Equity’ refers to the amount of interest a homeowner has in their property; i.e. the difference between the home’s market value and the remaining balance of all loans and finance on the property.
For example, if a property is worth £500,000 and the owner through their deposit and first charge mortgage owns 50% of the equity in the property, they may be able to get a second mortgage on the equity they hold, whilst paying their first charge mortgage.
A second charge mortgage lender will typically provide a maximum loan-to-value (LTV) of the second mortgage; which can be as high as 100%. This means that the borrower can borrow up to 100% of the value of the equity they own in the form of a second mortgage, in this case, based on the £250,000 equity already acquired.
The more money you have already repaid on your property through your deposit and mortgage, the more of the property you own outright and the more equity you own in your home or property.
Why Are Second Mortgages Useful To Pay For Weddings?
Weddings can be an expensive undertaking with lots of costs to consider. Typically, wedding funds can be made up of the couple’s savings, money from parents, gifts from loved ones, tax refunds or credit cards.
However, a second mortgage may be a perfect solution for funding your special celebration, by being able to utilise additional funds. There are a few advantages of second mortgages to consider when planning your finances for a wedding:
- Lower Interest Rates - Second mortgages are known for having lower interest rates than credit cards or other loan types, including many remortgage deals available, due to being secured against your property as a new loan. This means that they are less expensive to pay back in the long run compared to some other alternatives.
- Fixed Interest Rates - With a second mortgage you can use a fixed interest rate so that you are paying back the same interest rate each month without worrying about payments increasing in the future. This makes it far easier to budget and manage your finances.
- High Loan Amounts - Depending on the amount of equity you have in your home and the value of the property, you can usually borrow far more money with a second mortgage than you can with other loan types. In some cases, you could borrow as much as 100% of the equity you own in the property by getting a second mortgage.