What is a Second Charge Mortgage?

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May 18, 2023

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Are you struggling to make ends meet in the face of the ongoing cost-of-living crisis? Are you looking for a way to raise funds but hesitant to remortgage and lose your favourable interest rate? If so, a Second Charge Mortgage could be the answer you’re looking for.

What is a Second Charge Mortgage?

A Second Charge Mortgage is a loan that allows you to borrow money against the equity in your home.  You will use your property as collateral. Unlike a remortgage, where you would replace your existing mortgage with a new one, a Second Charge Mortgage leaves your  Mortgage in place and provides a second loan secured against your property.

Why choose a Second Charge Mortgage?

If you have a great interest rate on your current mortgage a second charge mortgage could be more favourable. Rather than remortgaging your entire balance at a higher rate, a Second Charge Mortgage allows you to borrow only the amount you need and pay interest on that amount. This can be a more affordable option in the long run.

Second Charge Mortgages also offer flexibility. Some lenders offer the option to repay your loan early without incurring any early repayment charges. This gives you the freedom to manage your finances on your own terms.

When is a Second Charge Mortgage a good option?

If you have complex income structures, you may find it more challenging to remortgage with your current lender. In this case, a Second Charge Mortgage could be the solution to help you borrow the funds you need.

These are also useful for consolidating debt. Consolidating your debt into a single monthly outgoing can make repayments more manageable. Your payments may even be cheaper but means that you may pay more interest over time.

Homeowners can also use Second Charge Mortgages to fund home improvements. With the proposed EPC regulation changes set to come into effect in 2025, landlords who own buy-to-let properties will be particularly affected. Second Charge Mortgages can provide a means to finance necessary improvements to rental properties.

Cost and conclusion

It’s worth noting that Second Charge Mortgages tend to have higher interest rates than First Charge Mortgages, due to the greater risk to the lender. However, rates have been coming down lately, closing the gap in the cost of borrowing. Despite the higher rates, a Second Charge Mortgage could be a more cost-effective option than remortgaging your entire balance at a higher interest rate.

Your adviser is on hand to help you assess whether a this type of mortgage is the right solution for you. They will consider changes in affordability criteria, weaker credit scores, or other financial implications brought on by the cost-of-living crisis. While a Second Charge Mortgage may not always be the best solution, it’s worth considering if you’re in need of additional funds, particularly if you don’t want to lose your existing mortgage rate.

Call our expert broker for a personalised solution on 01233 512012

Risk warning: Think carefully about securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.. You may be charged a fee for mortgage advice.

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