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Second-Charge Mortgages Explained

Jan 23, 2025
Second charge on your home
When looking to raise additional funds against your property, a second-charge mortgage could be an option worth considering. This comprehensive guide explains everything you need to know about getting a second mortgage for your home. 

 

What is a second mortgage?

A second-charge mortgage is an additional mortgage taken out on your property while maintaining your existing mortgage. It’s called a ‘second-charge’ mortgage because it ranks behind your first mortgage in terms of priority. 

 

 
 
 

How do second-charge mortgages work?

When you take out a second-charge mortgage, you’re using the equity in your home as security for an additional loan. The equity is the difference between your property’s current value and the amount you owe on your first mortgage. 

 

You’ll make separate monthly payments to your second-charge lender alongside your existing mortgage payments. The interest rates are typically higher than first-charge mortgages because the lender takes on more risk. 

 

 
 

Why take out a second mortgage?

Some homeowners opt for a second-charge mortgage when they have a particularly good rate on their first mortgage that they don’t want to lose through remortgaging. There are several other reasons people choose this option, including:

 

  • Home improvements: The extra funds spent on your home increase the property’s value.

  • Debt consolidation: This allows borrowers to combine higher-interest debts into one lower-rate loan. 

  • Personal life events: For example, weddings or funding for education or a business.

 

How much can I borrow on a second-mortgage?

The amount you can borrow depends on several factors:

 

  • The equity available in your property

  • Your ability to repay the loan 

  • Your income and credit history 

  • Any existing financial commitments 

 

Who is eligible for second-charge mortgages?

The eligibility criteria can vary between lenders, but generally, it includes:

 

  • Being a homeowner

  • Possessing sufficient equity in a property

 

What to consider before taking out a second-charge mortgage

Before you commit to taking out a second-charge mortgage, carefully consider the total cost of borrowing. Think about whether you can comfortably afford both mortgage payments in the long term. Consider your job security and any potential changes to your circumstances. It’s crucial to understand that your home is at risk if you fail to keep up payments on either mortgage. Seek professional financial advice to ensure this is the right option for your circumstances. 

 

What if I move?

If you decide to move house, you’ll either repay the second-charge mortgage or transfer it to your new property. The process can be complex and may involve additional fees. 

 

Pros and cons of second mortgages

Pros

Cons

Typically, the interest rates for second-charge mortgages are lower than those for unsecured loans or credit cards because the loan is secured against property.

Second-charge mortgages generally come with higher interest rates than first mortgages because they are considered higher risk by lenders.

A second mortgage allows you to release equity from your property without needing to remortgage.

If you fail to keep up with repayments on either mortgage, your home could be repossessed.

 

 

Alternatives to second mortgages

Before opting for a second-charge mortgage, consider alternatives such as remortgaging, taking out a further advance with your current lender, or using unsecured personal loans or credit cards for smaller amounts. Each option has its advantages and disadvantages, and the best choice will depend on your circumstances, the amount you need to borrow and your existing mortgage terms. 

 

You can get in touch with one of our Sales Advisers to find the best mortgage deals for your circumstances. Browse our collection of brand-new developments and become a homeowner with Barratt Homes.

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