Guide
To Second Mortgages
What
Are Second Mortgages?
Why
Would I Want A Second Mortgage?
How
Do Second Mortgages Work?
Are
There Different Kinds Of Second Mortgage?
Which
Lenders Provide Second Mortgages?
Things
You Should Know About Second Mortgages
Second
Mortgages: Frequently Asked Questions
Second
Mortgages - UK Guide
What Are Second Mortgages?
Sometimes
known as "secured loans" or "home equity loans",
second mortgages are mortgage loans that are secured on a
property which already has a first mortgage on it.
For
example, if your home is worth £150,000 and you owe
£80,000 on your existing [first] mortgage, you would
be eligible to take a second mortgage based on the equity
in your home – the difference between its value and
what you owe on your mortgage.
Why
Would I Want A Second Mortgage?
Second
mortgages are ideal for a range of purposes:
•
Buying a second home
•
Funding a business startup
•
Renovating or extending your existing home
•
Consolidating your existing debts in a single, cheaper loan
Be
careful, though – second mortgages are seen as higher
risk by lenders, and consequently usually have higher
rates of interest than first mortgages.
In
some circumstances – depending on what you want the
money for – it can be cheaper to remortgage
than to take a second mortgage. That way, you retain the benefit
of the lower interest rates available on first mortgages,
saving you money on interest payments in the long term.
If
you are not sure whether remortgaging or a second mortgage
is best for you, take a look at our section
on remortgaging for more information.
You
might also want to consider getting in touch with an independent
mortgage adviser who will be able to explain your options
and show you the best deals available.
How
Do Second Mortgages Work?
Second
mortgages are pretty similar to first mortgages, but with
a few added complications.
First
of all, you can't keep it a secret. When you apply for a second
mortgage on a property, you have to tell your first mortgage
lender about the second mortgage – and both lenders
have to agree to the deal.
The
reason for this is risk. Second mortgages are second in line
when it comes to debt collection. In a worse case scenario
if your home is repossessed and does not sell for enough to
cover both mortgages, the law means that the first mortgage
lender will get their money first – leaving the second
mortgage lender out of pocket.
That's
why interest rates are higher on second mortgages –
there is more risk for the lender.
Of
course, when you apply for a second mortgage your lender will
value your home to make sure that it is worth enough to pay
off both your first and second mortgages - but even then,
things can go wrong:
• You could become unable to pay your mortgages –
through sickness or unemployment
•
The value of your property could fall, so that even if you
sold it you would not be able to pay off both of your mortgages
Even
if you are keeping up payments on your first mortgage, your
home could still be repossessed if you do not keep up payments
on your second mortgage as well. This makes it important not
to stretch yourself too much when considering a second mortgage,
however tempting it seems when times are good.
Read
On
What
Are Second Mortgages?
Why
Would I Want A Second Mortgage?
How
Do Second Mortgages Work?
Are
There Different Kinds Of Second Mortgage?
Which
Lenders Provide Second Mortgages?
Things
You Should Know About Second Mortgages
Second
Mortgages: Frequently Asked Questions
Second
Mortgages - UK Guide
