What is a Second Mortgage?
A second mortgage is a secured loan extending over £1,000. This is taken out against equity in your property. A successful application for second mortgage will indicate that you have two mortgages to pay off.
Although you would require being a homeowner to take out a second mortgage, it is not compulsory for you to live in the home you wish to secure the loan against.
Why Go for a Second Mortgage?
There are a numerous reasons people might need a second mortgage secured against their main home. Here are some of the strongest of them all:
Struggling to Borrow
Are you struggling to borrow certain type of unsecured borrowing? Self-employed usually don’t get unsecured loans. For those who have been finding it tough to get a personal loan can go for second mortgage
Up Credit Score
It is a good idea to remortgage (take a second loan) to build up your credit score. This may mean you can pay more interest on your mortgage. A second mortgage will make you pay additional interest on the new amount you have borrowed.
It is usually cheaper to take out a second charge mortgage as compared to remortgaging when your mortgage comes with a high early repayment charge.
A lot of people take out second mortgages to cover the following:
- Costs for home improvement
- Healthcare costs
- Home renovation costs
- Debt consolidation
The Amount you can Borrow
Most people would want to know the exact amount they can borrow on a second mortgage. Usually, a second mortgage allows you to ‘make space for’ any equity you have in your home. Thereafter, you can use this as security against a new loan.
Equity – It is actually the percentage of your property owned entirely by you (the amount of your home cost subtracted by any mortgage owed on it.
How to Get a Second Mortgage?
It is always recommended to take advice from a professional and experienced mortgage broker north London. For those who would like to get a second mortgage should know that affordability checks have become immensely strict. Hence, you must prepare evidence to confirm your lender that you can cover the cost of two mortgages without any difficulty.
Applying for a Second Mortgage – Some Expert Tips
- Minimize expenses at least 3 months prior to applying for a second mortgage
- Prepare a document displaying your income and proving that it can cover two mortgages
- Compare mortgage deals
- Seek professional advice to ensure a second mortgage works for you
- Repay your first mortgage as early as possible
Pros of Second Mortgages
No Direct Risk on Home – It is separate from your existing mortgage. Hence, you do not have any direct risk to your ‘main’ home.
Cheaper – If you are100% sure you can afford the repayments, getting a second mortgage is cheaper as compared to a secured loan.
Cons of Second Mortgages
Expensive to Pay – It is definitely more expensive to pay for two mortgages. This may lead more debt problems in your life.
Tough to Get Approval – Presently, the ‘affordability checks’ have gotten extremely tough especially for second mortgages.
Indirectly Riskier for Home – Taking a second mortgage will put your ‘main’ home at risk. This is an indirect risk wherein you may need to sell your home under circumstances where you can’t continue with repayments.
Moving Home – When you sell home, it is important to pay off second charge mortgage or transfer it towards a new mortgage.