A second charge mortgage could be a great option for homeowners in need of extra funds without having to switch their current mortgage. In simple terms, a second-charge mortgage is a loan that uses the equity in your home as collateral. It involves taking out another mortgage alongside your existing mortgage on the same property, allowing you to borrow against your home’s value without remortgaging entirely.

It’s worth noting that a second-charge mortgage is entirely separate from your first mortgage, meaning you have two mortgages to pay off, but it can be a way to access the cash needed for big expenditures such as home renovation, without incurring the costs associated with switching to an entirely new mortgage. This kind of loan, however, requires homeowners to possess some equity built up in their homes to be eligible.

You can use a second charge mortgage to raise money to consolidate debts you may currently have or for home improvements, it is beneficial if your credit rating has gone down or your personal circumstances have changed such as becoming self employed since your current mortgage was taken out, as you will have higher interest rates available to you if you apply for a remortgage. The interest rate will be on the lower amount you are borrowing.

Securing debt that was once unsecured carries a huge risk as your property is used as collateral if you are unable to make payments towards the second loan, it is vital that you keep up with your mortgage repayments. If the money is raised for home improvements then this money will just be used to fund the changes being made.

Existing mortgage lender approval

Also, as with any loan, homeowners have to prove that they can afford to meet their repayments to their second lender, and prior approval from your existing mortgage lender is a must. The second lender usually looks for vital signs such as your credit score, employment status, outstanding debts, and current outgoings. Therefore, it is pertinent to evaluate your options and make an informed decision before delving into the process.

It’s worth bearing in mind that if you fail to meet your repayment obligations, you could risk losing your home, which could be repossessed by the lenders to recover their investments. Thus, due diligence should be taken to ensure that a second-charge mortgage will ultimately lead to financial stability over the long term.

Interest rates for secured loans (second charges)

Lastly, it's essential to consider interest rates before taking out a second charge mortgage. Second mortgages usually come with higher interest rates than the first because the first lender is paid back first during a repossession. If the proceeds of the sale fail to satisfy the debts, the second-mortgage lender may not recover the full amount. Thus, the higher interest rates protect their interests.

Overall, second charge mortgages are usually flexible financial products that only suit a particular group of homeowners. With cautious consideration and consultation with your mortgage provider, they can undoubtedly help homeowners access the funds they need against their property's equity.

If you are looking for a mortgage in the Merseyside area, contact LTC Mortgages today at 0151 662 0188 or email [email protected]