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What is a second charge mortgage?

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What is a second charge mortgage?

An Second Charge mortgage is an extra loan added on top of your mortgage. They are also referred to as secured loans..

Contrary to re-mortgaging when you switch your primary mortgage to a different one, A Second Charge Mortgage will be a mortgage that is paid in conjunction with the current mortgage. When your current mortgage is the initial legal charge that is attached to your home When you apply for another mortgage there is a second legal charge is added, thus the name.

It is necessary to be a homeowner for the Second Charge Mortgage although you don’t have to reside in the home. The most common reason for it is to release capital in the home.

What are the best times to use it?

Second-charge mortgages can be usually utilized to raise funds to cover a particular need. This could be for major repairs, extensions , or personal expenses.

Second Charge Mortgages can be a great alternative method of raising cash by either extending the current mortgage (a “Further Advance”) or remortgaging it to another, larger, basic mortgage.

Since mortgage applications have become more challenging in recent years, further advances and remortgaging could be difficult for people who have a self-employed status or earn a variable income from a small-scale business.

Second charge mortgages are usually utilized instead of refinancing if your credit score has declined which means you may be subject to higher interest rates for your refinancing loan. They can also be utilized when the early repayment cost is extremely expensive on your current mortgage and remortgaging is expensive.

Like mortgages with basic terms your home is also at risk if you fail to make the required payments.

The important details

You can secure the equity in your home
Up to PS2m in credit
A low credit score won’t impact the application process as much as it does with a simple mortgage
It is useful for those with an income that fluctuates or who are self-employed.
Ideal for those who require quick funding – a three-week turnaround is possible.
Up to 95 95% LTV
There are no upfront costs, such as survey costs, prior to when your mortgage is accepted

Benefits for small and semi-professionals

This can be used for repairs and renovations.
Sometimes, remortgaging is cheaper than remortgaging.
It is possible to secure funding in a short time to allow specialist projects advance
It is easier to obtain if you are earning a variable income

The reasons to consider the second charge mortgage

There are several reasons for why a Second Charge Mortgage may be better than refinancing…

Beware of early redemption fees (ERCs) If you’re already a homeowner with a mortgage, remortgaging may result in the payment of an early redemption charge that could be the thousands.

Keep low rates If your current mortgage has the lowest interest rate, it is possible that you could be unable to get them back if you refinance. The cost of redemption can exceed hundreds of dollars.

Make sure to pay only interest If your mortgage has only interest the remortgaging process could mean that you need to switch to a mortgage that is repaid, with higher monthly costs.

Credit rating is not good For those whose credit has been shaky it becomes difficult to refinance.

A fixed income is not a good thing Small-scale business owners may typically be self-employed and earn fluctuating income or multiple sources of income. This can make remortgaging more difficult.