Are you looking for a second mortgage? Before you start your search, find out everything you need to know.
Many people across the UK choose to look for a second mortgage, but why? It may seem like taking out another loan against your home is a ridiculous idea, but the fact is 1000s of people choose to go for a second mortgage. It can be a great way of freeing up some cash, to use however you see fit. Second mortgages shouldn’t be taken lightly, which is why we’re here to help.
In this post, we’re going to provide you with all the information you need to know about getting a second mortgage. We’ve spoken to an expert online mortgage broker, Mortgages. Online, and found out everything there is to know about getting a second mortgage. We’ve got all the info you need, below.
Why get a Second Mortgage?
It may baffle many already paying for their first mortgage but getting a second mortgage can be really handy for you. See, a second mortgage doesn’t replace your first one, and it’s considered an entirely separate and second debt. However, don’t let the word put you off, this ‘debt’ is a still a mortgage, secured against your home. You’ll have two loans against your home, but unlike your first mortgage, your second doesn’t have to be used to purchase a home.
A second mortgage can be used for anything, and we mean anything (as long as it’s legal). It’s just a way of borrowing some extra money but secured against your property. Many use their second mortgage for home improvements, to boost the value of their home. But, like we’ve said, your second mortgage can be used for anything.
Not anyone can just land themselves a second mortgage, there are some criteria you need to meet before you can free up the cash. You can see them, below.
- You need to own your home
This one is a given, but you need to have a mortgage and own your home. Because no home means nothing to secure the loan against which means you will not qualify.
- You need to pass affordability checks
Mortgage lenders just can’t grant you a second mortgage, they need to assess before lending you the money. Your income, outgoings and mortgage repayments will be reviewed, to make sure you can afford the repayments on your second mortgage.
- You need to have equity in your home
Finally, you’ll need to have some home equity. If you’re not sure what this is, don’t worry, we’re about to explain. If your home has gone up in value, and your mortgage repayments are less than the value of your home, then congrats, you have equity.
Say your home is worth £200,000 when you bought it. And you borrowed £180,000 with a £20,000 deposit. If your home is worth £250,000 and your mortgage owed is at £170,000 it means your home equity is £80,000.
If you have all of these, then you can get yourself a second mortgage.
The Benefits and Risks
As with everything in life, there are pros and cons to getting a second mortgage. Find out the rewards and risks in this section.
- Get Approved
When borrowing money, you normally find that if you put something up against the loan as collateral (your house), you’ll be more likely to be approved then with an unsecured loan. Because a secured loan means the lender’s investment is, well, secure, which means they’re more likely to hand over the money to you. So, if you’re in need of a loan, getting a second mortgage may be the answer.
- Cheaper than Remortgaging
Whilst remortgaging is replacing your mortgage, like we said above, a second mortgage is in addition to your current one. Sometimes, remortgaging isn’t cheap, so many find that getting a second mortgage is the best option for them.
- Borrow more
Some personal loans may not offer you the right amount you need. With getting a second mortgage, you can typically borrow more than other lenders may be able to offer through a second mortgage.
- Losing your Home
Failing to make repayments on your second mortgage means that your home could be up for repossession. It’s the same with any secure loan. If you’re not meeting your repayments, eventually your property will be repossessed by the lender. So, it’s key to make sure that you can afford the second mortgage – hence, the affordability checks.
- Consolidating Debt
Many choose to seek a loan in order to consolidate other debt. However, by using a second mortgage to make small repayments on other debt, you could find that you’re paying a lot of interest. Because a second mortgage has a loan-term of around 30 years, which means you could be paying a lot of interest over that time. A second mortgage isn’t always the best option for repaying smaller debts.
- Moving House
If you want to move to a new house, whilst you’ve got a second mortgage, it can be difficult. Because you have 2 mortgages, which means selling your home means you have 2 to pay off, and still need a deposit for a mortgage on your new home. Consider the affordability before getting a second mortgage, especially if you want to move home in the near future.
There you have it! This is all you need to know about second mortgages. If you think you fit the criteria and could benefit from a second mortgage, it may be right for you. Always check you can afford the repayments as failing to make them means your home could be repossessed.
All information on second mortgages provided by Mortgages.Online.