What is a second charge mortgage?

A second mortgage lets you borrow money against the equity in your home.

It’s a secured loan so you borrow money using your home as security. 

You’ll have this second mortgage and your existing mortgage. It’ll usually be with a different lender.

When you take out a second charge mortgage you’ll have two mortgages on the same property.

How do second charge mortgages work?

A second charge mortgage works in a similar way to a normal mortgage

You borrow some money and repay it in monthly amounts over a set period of time. These repayments include interest.

This set period of time is the mortgage term.

Second charge mortgages are usually for 5 to 25 years. This can be £1,000 or more.

You can get a second charge mortgage on a fixed or variable rate.

The difference between a home equity loan and a second mortgage

A home equity loan can be seen as a second mortgage if you already have a mortgage on the home.

A second charge mortgage is also known as a:

  • secured loan

  • homeowner loan

  • home equity loan

They're very similar.

If your home is free from debt and you want to take out a loan against your home, it is not a second charge mortgage.

Should I get a second charge mortgage?

The benefits of second charge mortgages is that:

  • they can cost less than unsecured loans like credit cards

  • you may be able to borrow more than with other loans

The downside to second charge mortgages is that:

  • your home could be repossessed if you do not pay your mortgage. The first charge lender gets their money before any goes towards paying the second charge mortgage

  • interest rates are higher than first charge mortgages. There may be cheaper ways to borrow money

Should I get a second mortgage or remortgage?

Remortgaging is a popular way of borrowing money against the equity in your home. 

Remortgaging to release equity means you take out a new mortgage large enough to pay off your existing mortgage. It will also leave you with a cash lump sum.

You can use that cash to make home improvements.

Interest rates on remortgage products are usually lower than on second charge mortgages. 

Taking out a second charge mortgage can be better than remortgaging if you're:

  • on a low lifetime tracker rate on your current mortgage. You could lose this and pay more interest if you remortgage

  • tied into a fixed rate mortgage. You might have to pay an early repayment charge to exit the deal early

Can I get a second mortgage?

To get a second charge mortgage you’ll need:

  • equity in your property

  • enough income to pay your first and second charge mortgage

  • a good

To get a second charge mortgage you need equity in your home.

You’ll have equity in your home if its value is more than your outstanding mortgage. 

For example, if your home is worth £400,000 and you owe £100,000 on your mortgage, you’ll have £300,000 in equity.

You may have equity in your home if:

  • you’ve paid off a lot of your mortgage

  • you’ve made home improvements that have boosted your home’s value

  • property prices have gone up in your area

A second mortgage calculator can give you an idea of how much you could borrow.

The lender will do an affordability assessment when you apply for a second charge mortgage. This is to check you can afford to pay the mortgage.

An affordability assessment looks at your income and outgoings.

Your income will include:

  • your salary

  • investment income

  • money from pensions or benefits

Your outgoings will include:

  • your first mortgage

  • household bills

  • regular spending

  • any other debt repayments

Your credit score is less important for a second charge mortgage than it is for a first charge mortgage.

In some cases you may still be able to get a second mortgage with a bad credit score. 

This can vary from lender to lender.

Who does second mortgages?

Second charge mortgages are usually offered by specialist lenders via mortgage brokers.

Specialist lenders offer mortgages to those that might not meet most lenders’ criteria. 

If you have bad credit or are self employed you might want to use a specialist lender.

Specialist lenders that offer second charge mortgages include:

  • Paragon Bank

  • United Trust Bank

  • Prestige Finance

  • Masthaven Bank

  • Together

  • Shawbrook Bank

How to get the best second mortgage rates

The more equity you have in your home, the better the deals you could get.

Your total debt on your current and second charge mortgage must not be above the maximum loan to value (LTV).

The best rates available are usually up to a total LTV of 65% or 70%. 

Second mortgage rates vary between lenders and second charge mortgage products. 

A mortgage broker can help you shop around. They may have access to second charge mortgages not available direct from a lender.

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Your home could be repossessed if you don't keep up repayments on your mortgage.

You may have to pay an early repayment charge to your existing lender if you remortgage.

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