What is a second charge mortgage?

What is a second charge mortgage?

A second charge mortgage loan is another or second loan secured against the value of your property.  It is given the term ‘second’ because the lender of a second charge property has second settlement priority behind your first lender. This means that if you sell your home then the first charge mortgage will be settled and then any residual funds are used to pay off the second loan.

Why would I want a second charge mortgage?

There are a number of reasons why a second charge mortgage loan may be the right thing for you.  For example, if your existing loan has a high Early Repayment Charge (ERC) it may be cheaper to take out another loan secured against your property rather than re-mortgaging.  Second charge mortgage loans can also help if, since taking out your existing loan, your credit rating has changed.  In this case, if you took out a second charge mortgage loan you may only need to pay a higher interest rate on the second charge amount and not the entire loan amount.

How much can I borrow?

A second charge mortgage loan allows a homeowner to use the value or equity in the property as security for a second loan.

Property Value: £250,000
Existing Loan Left to Pay: £150,000
Equity: £250,000 – £150,000 = £100,000
Maximum Amount of Second Charge Loan = £100,000

Some other things to consider

In the same way as taking out a first charge mortgage loan, taking out a second charge mortgage loan needs to be thought through carefully and appropriate advice taken.  If your property has increased in value since you purchased it and you have disposal income, i.e. when all your monthly outgoings are taken care of, then a second charge mortgage loan may be right for you but if you sometimes struggle to meet you financial obligations then careful independent financial planning is strongly advised.

If you are trying to consolidate other shorter term loans by taking our a second charge mortgage loan then whilst your monthly payments may go down, the payment term is likely to be longer and overall you may pay more.

Moving house?

If you have a second charge mortgage on your property and you then decide to move house you will need to pay off your second charge mortgage or transfer it to the new property.

Finally…

A second charge mortgage is similar to your first charge mortgage, your home is at risk if you don’t keep up the payments.