A second charge loan or second mortgage, simply put, is a secured loan, which is secured against the borrower’s home. It allows you to utilise any equity you have in your home as security against the second loan. Bear in mind, that should you move home, the second charge will either need paying off or be transferred to your new mortgage.
Why would I get a second charge loan?
A second charge loan can sometimes be a better route to access the equity in your home versus re-mortgaging, especially if you have early redemption fees to consider. It can be used for anything – personal or business reasons. From debt consolidation, home improvements, holidays, to clearing tax bills, etc. Especially useful if your credit rating has gone down since taking out your first mortgage or perhaps you’re struggling to get other forms of unsecured borrowing due to being self-employed.
But, do bear in mind, that if you were to take out a second mortgage, you would essentially have two mortgages against one home, which for some, is probably a daunting thought. To arrange a second mortgage, Cheshire Money can assist with this process and will advise on the best way in order to do this.
How much can I borrow?
This will depend upon how much equity you have in your home. For example, if your home is worth £250,000 and you have £150,000 left on your current mortgage, then you have £100,000 in equity. A second charge loan will also depend on your credit rating, may well attract higher mortgage rates – but not perhaps as high as an unsecured loan would such as a credit card.
Disadvantages to consider before taking out a second charge loan.
Though a useful tool to have in your arsenal, it’s probably best not to consider a second mortgage, if you’re already only just able to repay your mortgage. You could lose your home if payments are not kept up to date on both mortgages. Plus, if you’re considering this kind of loan to consolidate debt, it could mean you’re paying off credit cards, etc. for up to 25 years thus paying more interest.
As always, Cheshire Money are on hand should you wish to talk your options through and will advise on the best action to take.