Second Mortgage

What is a Second Mortgage?

A Second Mortgage can be placed on a property after a First Mortgage has been taken out, and ranks behind the First Mortgage in terms of who gets the money if the property is sold in repossession. Second Mortgages tend to be a lot more expensive than first mortgages to reflect this risk. Consider asking the first mortgage holder (usually a building society) to give you a (cheaper) further advance before considering a second mortgage.

A Second Mortgage is exactly what it says - another mortgage on your home, leaving you with two mortgages.

A Second Mortgage works much the same as a First Mortgage does. You have to apply to a lender who will look at the Loan To Value and the extent to which you match the criteria.

One key issue when it comes to getting a second mortgage is the amount of equity you have in your home. The chances are that if you have owned your home for a while, it will have increased in value. After all, most homes in the UK have done so in the last few years. So it seems likely that you will have built up some equity in the home - and since your property will be high in value, the loan to value ratio is likely to be attractive to adverse mortgage lenders and others.

The Pros & Cons of a Second Mortgage

The benefit of a second mortgage is that you get the cash at a rate that is generally lower than the interest rate on unsecured loans, and much lower than the rate you would pay if you took a cash advance on your credit card. That`s because a second mortgage is a secured loan - secured on your house.

This need not be a worry if your finances are stable, but it is a concern if you think you might have difficulty with payment. Remember, you already have one mortgage on your home and the mortgage lender has a first charge on your home. That means that if you stop paying, that lender can seize your house. A second mortgage puts a second charge on your home, meaning that the second mortgage provider can take a share of any proceeds if your home has to be sold. What is worse, if you pay the first mortgage but fail to pay the second, that mortgage provider can seize your home, even if the sum involved is relatively small.

Getting a second mortgage is therefore something you should consider very carefully.

Q: Is a second mortgage the same as a remortgage?

A: No. Remortgaging involves changing one mortgage, whereas a second mortgage means taking out an additional mortgage on a property.

Q: What are the risks?

A: There are plenty of risks involved, which is why a second mortgage is rarely recommended. As you’re paying for two mortgages rather than one, you’ll be liable for the two sets of repayments, which means even if you keep up with payments on the first mortgage, you can lose your home if you fail to keep up with those repayments.

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