Second Mortgage

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Second Mortgage

Also known as a secured loan, is a powerful tool to help release equity from your house for any ongoing project.  A lot of people find themselves equity rich, and cash poor. They have spent years paying down their mortgage, and end up not having any savings to do what they need or want.  A second mortgage is what it says on the tin, it’s a second mortgage which sits behind the first mortgage lender.  It is a regulated mortgage product which will have its own interest rate on the loan amount you have borrowed.  At Compare the Mortgage we will work out if a second charge is suitable for your needs, we will then explain in detail why we believe this is the best option.

Debt Consolidation

A second mortgage could be used for debt consolidation, this could help you manage your debts by combining them into one single loan and one single payment, reducing the interest rate on your debt, spreading the cost over a longer period therefore reducing your monthly outgoings.

If you’re a homeowner and you have equity within your home or buy to let property, a second mortgage enables you to borrow against your equity value using your property as security.  The money borrowed can then be used to pay off your existing debts leaving you with just the new mortgage to repay with the new and improved terms.

With the right deal, a second charge mortgage can help you regain control over your finances and lower your monthly payments.  However, this isn’t without its risk’s and is important to talk to our team to discuss the risks involved with securing your debt against the property.

Think carefully before securing other debts against your home.By consolidating your debts into a mortgage, you may be required to pay more over the entire term than you would with your existing debt. 

Home Improvements

It is becoming more and more popular for people to extend and improve their current home.  By pulling out equity in your property you can add value, an extension, new kitchen or new landscaping, and can increase the current value of the property.  A second mortgage has more benefits than unsecured loan, check out our FAQs for more details.

Further Investment

Use the equity in your property to make you money by pulling out enough money for a deposit.  With this deposit you can get a buy to let mortgage which in turn will generate rental income for you.  Make your equity work for you.

Gifted Deposit

It is becoming increasingly difficult for first time buyers to get onto the property ladder. By getting a second mortgage and pulling out equity, you could gift this to your children for them to buy their first property, and help them with those first steps towards getting their new home.

Business Purposes

Your business might need additional funds for marketing or purchasing of equipment.  You can potentially get a second mortgage to boost your business to the next level.  Not all lenders allow this, and there would need to be a clear business plan. This will depend on the business itself, and each case will be assessed on it’s individual merit.

Frequently Asked Questions

What can I use a second mortgage for?

There’s lots of good reasons for using a second mortgage. The most popular reasons are for debt consolidation, home improvements or further investment. However, we have seen people pull equity out for weddings, gifting a deposit to family or into their own business and many other reasons.

How do I know if a second mortgage is right for me?

This is where our team can help you and discuss your options. Usually, a remortgage or further advance would be cheaper, although this isn’t always possible. You might be in a fixed rate with your current lender with early repayment penalties, or you may not be eligible right now for a remortgage with another lender. This is where a second charge loan can be particularly beneficial.

Can I use a second mortgage to repay my debt?

Yes, this is the most common use for a second mortgage. It allows you consolidate your debt into one secured loan, which will not only reduce your monthly outgoings, it could allow you to become eligible for a remortgage with a high street lender when the term finishes. However, please note, using a second charge for debt consolidation will secure the unsecured debt against your property and your property may be at risk if you don’t pay your mortgage payments. The mortgage terms usually last longer than loans and credit cards, so you may end up paying more interest over the period of time. For anyone thinking about a second charge for debt consolidation, it is important to speak to a specialist broker who can advise you every step of the way.

How much can I borrow?

Typically, with a second mortgage on a buy to let property is up to 75% of the property value (including your existing mortgage secured on the property) depending on the rental. With a residential property it all depends on your income. There are lenders that can consider lending 100% of the property value, however they will carry out an affordability assessment to see if this is achievable. Second charge lenders may lend up to 6x your income, this allows you to borrow more than the high street.

Should I use a second mortgage for home improvements?

Home improvements are becoming more and more popular, people are actively looking to increase the value of the property and adjust their home to make it a forever home rather than moving. Unfortunately, it’s a common theme we see people borrowing money with unsecured debt such as credit cards and personal loans, with the intention of repaying the debt when the property has increased in value and it’s time to remortgage. However, when you come to remortgage, this can impact your affordability limits with some lenders, or the worst case scenario is that with utilising your credit limits, you may have reduced your credit score, and not be able to pass the credit scoring banding for the new lender. Too often we have clients coming to us struggling to remortgage and capital raise to clear the debt due to one of the above reasons. A second mortgage will mean the scoring isn’t as heavily affected, and it’ll be considered part of your mortgage so won’t strain the affordability.

Benefits of a second mortgage for further investment

Ever wanted to start a property portfolio or looking for an income in addition to your income from your main job? The equity in your house can help you achieve this. By using the equity in your current property, you could purchase a buy to let and generate a rental income. One of our consultants can discuss how much this would cost you and the potential profit, you may be surprised!

Can I use a second mortgage to help my children?

Bank of mum and dad is becoming more and more popular as it’s getting increasingly difficult to get on the property ladder. One way of helping is by gifting a sum of money to them to help towards their deposit. This is easier said than done as most people don’t have large amounts of money lying around. One way of helping is by releasing equity from your house. If you already have a mortgage, but have equity in the property, a second mortgage will allow you to pull out an amount of money to gift to your children.

How can a second mortgage help my business?

A couple of lenders will allow you to release equity to help invest into your business. This is often seen when a company needs to purchase a large amount of equipment to expand their business. It might be needed to win a contract which will increase your income. There are lenders that will consider this, talk to our team at Compare the Mortgage.

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