A second charge mortgage is a type of secured loan that allows homeowners to borrow against the equity in their property while still having an existing mortgage. It is an additional loan secured on the same property as the first mortgage, arranged through a different lender. The second charge mortgage is completely separate from the existing mortgage, and the money raised can be used for purposes other than buying a property. Second charge mortgages work in much the same way as a traditional mortgage, where you can borrow a set amount over a specified term, which could be as long as 30 years, and you make monthly repayments towards paying off that loan.
Some reasons why someone might take out a second charge mortgage include wanting to borrow more money against their property without remortgaging or finding it difficult to get a personal loan. Second charge mortgages can be an alternative borrowing option to remortgaging or taking out an unsecured loan. However, taking out a second mortgage in this way does carry some risk, and borrowers should be aware that their home is at risk if they don’t keep up with the payments.
When choosing between available borrowing options, it is recommended to compare the cost and features to decide which mortgage is the most appropriate for your unique situation. Second charge mortgages require the same affordability checks and stress tests as a main or first charge residential mortgage. The interest rate on a second charge mortgage is usually higher than on a first mortgage, and the amount borrowed will be lower than that of the first mortgage. If the loan goes into default, the first mortgage lender gets paid before the second mortgage lender, which makes second mortgages riskier for lenders.
