Second Charge Loans are similar to Homeowner Loans, in that they involve taking out a loan that is secured against your property, which becomes secondary to your mortgage (hence ‘second charge’). A Second Charge Loan is oftentimes known as a ‘second mortgage’ and is an alternative to remortgage.
How does a Second Charge Loan Work?
As with a Homeowner Loan, the money borrowed in a Second Charge Loan is secured against the amount of equity in your home. Equity in your home is the difference between the value of your property and the amount of outstanding money you have borrowed against it already in your mortgage, in essence, the portion of your home that is actually yours.
The format of the loan repayment is usually monthly installments that can be paid over a number of years. The repayment term when you take out a secured loan is usually longer than on an unsecured or personal loan due to the amount borrowed being larger.
Because a Second Charge Loan is secondary to your mortgage, the mortgage has first priority when it comes to being paid off. If you were to fail to make payments on your Second Charge Loan the lender is able to seize your property, however, the initial mortgage provider must be paid first. If you default on both your mortgage and your Second Charge Loan, the mortgage provider will likewise be the first to receive funds from the collateral (your home).
Repay your debts
Borrow even with a poor credit rating
Competitive interest rates
Borrow up to £5 million on your home with Secured Loans
Lenders tend to offer more generous loan figures when the money is secured against your assets as a financial safeguard. The access to greater amounts of money is a real incentive for taking out a secured loan over an unsecured one.
How is a Second Charge Loan Different From Remortgage?
When you remortgage your property you are changing to a different lender and taking with you the debt that you still owe over to the new service provider. They then become the recipient of your monthly payments. Switching lenders can be beneficial to borrowers who want to reduce their monthly payments, to pay off their mortgage early, or to consolidate other debts.
Remortgaging often comes with considerable exit fees, making it only feasible for most if another lender is offering a notably better deal.
A Second Charge Loan is separate to your current mortgage and is secured against the part of your property that you do own (the equity in the home), rather than being secured against the property you are working towards owning, as in the case of a mortgage.
Second Charge Loans, being secured against the equity in your home, are suitable for people with poor credit ratings. Mortgages and remortgages, conversely, are calculated and approved depending on your credit rating and your ability to make monthly payments. The better your financial situation, however, the better deal you will be given on your loan.
Is a Second Charge Loan Right for Me?
A Second Charge Loan may be a good option for you if you need to take out a large loan (be it for home renovation, debt consolidation, or any other matter) but want to avoid the typically high interest rates on personal or unsecured loans. Further, if you do not have a brilliant credit rating, but have equity in your home upon which a loan can be secured, a Second Charge Loan is a good option for you.
You may be eligible for a Second Charge Loan if you:
are over 18 years old
have a steady income – are able to make monthly payments
have a property or asset to use as collateral
Second Charge Loans allow you to generate money from the equity in your home. It is important to remember that this is only a loan, and repayments will include interest. If you are confident that you can make your monthly repayments, a Second Charge Loan may be perfect for you.
Contact us for more information on Second Charge Loans and how they can help you.
Your home may be repossessed if you fail to keep up with your repayments.