Many homeowners at some stage or another consider releasing some money from their home. The reasons vary from home improvements through to funding a new or existing business, college or university fees, helping children onto the property ladder and so forth.
Here at Bright Loans, we know that second charge mortgages rather than remortgages, have become increasingly popular since 2019, a view supported by Which.co.uk. Yet what is a second charge mortgage and how does it differ from a remortgage? We take a look to help you consider your options, but as always it’s best to seek regulated financial help before you make a decision of this magnitude.
Taking out a second loan against your home using the equity that you have built up as security is called a second charge mortgage. If you compare second charge mortgages with remortgages, you will see that remortgages focus on paying off an existing mortgage with a new mortgage arrangement.
Second charge mortgages are usually taken out by homeowners to fund major financial undertakings or because of a significant change of circumstances, such as a credit file issue or something that prevents them from remortgaging. If you decide to make an application for a second charge mortgage, you will be subject to credit checks to ensure that you will be able to make repayments. The lender will also require a valuation of your home in order to confirm how much equity you have, based upon what it’s currently worth.
As we have seen, there are any number of reasons why people undertake a second charge mortgages comparison and decide to go ahead, with the popular ones being home improvements or dealing with changed circumstances.
These mortgages may not be the right option for all, but these types of loans can help in certain situations, such as:
• You have an extremely low interest rate associated with your current mortgage which you wish to retain and a remortgage would result in a higher rate to access extra finances.
• Your current mortgage has an extremely high early-repayment penalty.
• Your current lender can only offer products which are more costly than second-charge ones.
• Your credit rating has fallen which could mean remortgaging would be more expensive.
To some extent, yes. If you choose to go ahead with a second charge mortgage, even if it makes sense to do so, you will increase the associated risk of losing your home if you do not keep up with the monthly repayments. A second charge mortgage may not be the right option for you if you can access funds at a lower cost through remortgaging or a personal loan, or you’re only just about meeting your current mortgage repayments.
Another reason why a second charge mortgage may not be the right path to take relates to consolidating debts from smaller unsecured loans or credit cards. If you do this, it could lead you to having to pay even more interest overall, and you will be transferring an unsecured debt to a secured one, putting your home at greater risk.
If you look further and compare second charge mortgages to traditional mortgages and how they work, you’ll quickly understand that there are significant differences. When you opt for a traditional mortgage, the amount you can borrow is determined by the total value of your home.
For example, if you are buying a property worth £300,000 and you already have £30,000, you will be borrowing £270,000, which is at 90% loan-to-value or LTV; the ratio of mortgage to property value.
However, when you go ahead with a second charge mortgage, the combined debt amount on your current mortgage together with the second charge mortgage cannot be above the indicated maximum LTV, with the best rates typically being up to a total of 70% LTV. This means that if you have accrued half of the equity in your £300,000 home, through a mix of the deposit and the repayments you have made since, you will only be permitted to add a further charge and loan of 20% of your home’s value to get a second charge mortgage with a total LTV of 70%.
Once you have obtained advice about a second charge mortgage and have confirmed that it’s the right option for you, the next stage is to compare second charge mortgages out there at the moment. Here at Bright Loans, it has never been easier. In just three simple steps, you will be able to find quotes from hundreds of companies and compare second charge mortgages within minutes. All you need to do is:
1. Just enter a few details about yourself and your current circumstances.
2. We will do all the hard work with our smart comparison technology, so you can compare quotes simply and efficiently.
3. After you have reviewed the prices and apply, we will do all the paperwork for you.
Get ready for a second charge mortgages comparison…
It really is as easy as 1,2,3. And whilst you are undergoing a second charge mortgages comparison, you can rest assured that our website is fully secure with some of the best-known technology making sure your data is completely secure. In addition, Bright Loans are independent and impartial, so we can identify a range of products for you.
We also make sure you never miss a renewal saving with the Bright Loans alert service and we never sell your data on, meaning we keep all your information safe and secure. We also understand that managing your finances can be hard work, and that is why we are committed to making the process as simple as can be for you.
With all that in mind, Bright Loans are here to help you identify the best deal for your second charge mortgage.