Benefits of second-charge personal mortgages
Key benefits of second-charge personal mortgages include:
- Competitive interest rates
- Flexibility
- Larger borrowing amounts
- Available to individuals with weaker credit profiles
Second-charge personal mortgages can enable individuals to access larger sums of money, often at more competitive rates and potentially over longer terms than unsecured personal loans. As your property is used as security, funders may be able to lend money to those with less-than-perfect credit.
What is a second-charge personal mortgage?
A second-charge personal mortgage, also known as a second mortgage, is a type of loan secured against your property, where you already have an existing mortgage. This type of loan allows homeowners to borrow additional funds on top of their existing mortgage, without having to refinance their current mortgage. The additional funds can be used for a variety of purposes, such as home improvements, debt consolidation, or purchasing a second property.
The loan is secured against the equity in the property, which is the difference between the value of the property and the outstanding mortgage balance.
How do second-charge personal mortgages work?
The second-charge personal mortgage will typically be put in place after your existing personal mortgage has been put in place. The facility would typically be structured as follows:
- Loan amount: The lender will provide a loan of to a maximum level depending on the value of your finished project. This is commonly expressed as a maximum LTV, for example, “85% LTV”. This stands for “Loan to Value” and means if your property is worth £1,000,000, the funder would lend a maximum of £850,000, noting your existing mortgage balance.
If you had an existing mortgage balance of £500,000 then the second-charge personal mortgage lender would be able to lend up to an additional £350,000 (£850,000 – £500,000).
- Loan term: The loan will be provided over a fixed profile, typically between 5 – 30 years.
- Interest rate: The lender will typically charge an annual interest rate that will depend on the level of LTV required, with higher LTVs typically attracting higher rates. Rates will typically be higher than your existing mortgage provider as the risk to a funder is greater with a second-charge vs a first-charge.
- Security: The loan will be supported by a secured legal second-charge against your property, providing the lender with security in the event of default, sitting behind your existing mortgage provider.
- Repayment: The loan will typically be repaid on a monthly basis and funders may be able to offer interest-only periods as part of their terms.
- Fees: The lender may charge certain fees for arranging the loan, such as an arrangement fee. They may require a new valuation to that instructed by your existing mortgage lender and solicitors’ charges will likely apply. We will outline all costs clearly so you are fully informed of associated charges and can compare solutions properly.
