What is Second Charge Lending?

4 Minutes Read

Second charge lending or mortgage is a charge that has secondary priority behind your first charge. This second charge is a secured loan. This means that the charge uses your property as a security. Many borrowers use a second charge as a way to raise money instead of remortgaging.

In order to get a second charge, you must own a house even if you do not live there. A second charge lending enables you to use any equity you possess in your house as security against another loan. This means that you will have mainly two mortgages on your property. Equity is the value of your property minus the amount of your loan. A second charge lending can be from £1,000 upwards.

A second charge lending or mortgage is useful for many reasons. If your credit score became worse since your first charge, remortgaging can move you to pay more interest on your entire loan. However, a second charge lending means that you will pay the interest only on the additional fund you took from the lender. If the early charge of repayment is high for your mortgage, a second charge mortgage can be cheaper than a remortgage. If you are self-employed, you can use a second charge lending if you are struggling to get a personal loan which is an unsecured loan.

However, you must think careful before to get a second charge lending. You can lose your property if you are unable to repay your first or second charge. It may not be a good idea to use a second charge for consolidating your debt. The term of a second charge can be up to twenty-five years. If you use it for paying small debts or little unsecured loans, you may end up by paying more interest in the long period. In addition, you are converting unsecured loan into secured loan. You may lose your property this way.

Before to take a second charge lending, ask your current lender about the charge of an extra loan. Make also sure to get the best annual percentage rate by comparing lenders’ rate, the total amount you will have to pay back, and the duration of the loan. You need also to find out the exact terms of mortgage, interest rates, early charges of repayment, and fees. The law required to the lender to give you fourteen days after sending the agreement so that you may take time to read it carefully before to sign. This is called ‘consideration period.’

Since you can lose your property if you are not able to pay your loan, it is better to apply for a personal loan if you need a little amount of cash in addition of the first loan. If your early charge of repayment on your first mortgage is not large, you have some equity in your property, and your situations changed, a remortgage or an additional loan from the first lender may be better for you.