What is a second charge mortgage?

A second charge mortgage is essentially a second mortgage on your property.

If you wish to release equity and money from your property you can either remortgage your current mortgage to take a new single larger mortgage, or you can consider a second mortgage or loan against your property.

Why would I look at taking second charge loan or mortgage?

A second charge can be used to raise additional funds secured against your property as a very cost-effective form of borrowing. Typical uses of the additional funds released from a remortgage include:

  • Making improvements to your home
  • Paying off loans and credit cards
  • Financing a large one-off purchase such as a wedding or new car
  • Raising a deposit to purchase an additional property

What types of second charge loans or capital raising options are there?

As with mortgages and loans, there are different options, we have detailed the 3 main ones below

  1. We may be able to apply for a further advance with your current mortgage lender which is essentially a top up on your current mortgage with a new interest rate and term for the top up
  2. We may be able to apply for a completely new loan against your property with a second charge mortgage or loan lender
  3. We may be able to remortgage your current property to raise the additional funds, read on…

Why wouldn’t I just remortgage?

You may be able to remortgage your current mortgage to a new lender for the whole amount of borrowing.

There are a few reasons why you may not, the biggest of which may be because your current mortgage has what’s called an Early Redemption Charge (ERC). This is a charge which you have to pay if you wish to pay your mortgage off in full before the end of a fixed period.

For example, if you have a 2-year fixed rate mortgage you are likely to have an ERC which you have to pay if you pay the mortgage off before the end of that 2-year period. This is because the lender is giving you the security of a fixed rate and no increasing monthly payments so there is a penalty to pay for redeeming the mortgage with the security they have provided. 

Despite this, second charge mortgages tend to have a higher interest rate than a first charge (normal) mortgage, so it may be more cost effective to pay the ERC and remortgage than take a second charge.

Of course, with anything related to a loan or mortgage on your home it is always best to take advice and that’s where we are here to help.

Give us a call and we can talk through what you are looking to do and what options are available for you.

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