Funding major home improvements and dealing with changes in circumstances are among the main reasons homeowners take out second-charge mortgages.
While they won’t be the right option for everyone, these loans can make sense in specific circumstances, such as the following:
- You have a very low interest rate on your main mortgage, and you’d need to re-mortgage to a more expensive rate to access extra funds.
- Your current mortgage has a very high early-repayment charge.
- Your existing lender only offers products that are more expensive than second-charge products.
- Your credit rating has dropped, meaning re-mortgaging might be more expensive.
Reasons to avoid a second-charge mortgage
You should avoid taking out a second-charge mortgage if any of the following applies:
- You can raise funds more cheaply by re-mortgagingor getting a personal loan.
- You’re only just managing to meet your current mortgage repayments.
The cost of second-charge mortgages has dropped significantly in the past year or two, meaning you can now get a product taking you up to 70% LTV at a rate of less than 4%.
Both fixed-rate (for periods of two or five years) and variable-rate (based on the lender’s standard variable rate – SVR – or the base rate plus or minus a certain margin) deals are available, though the cheapest rates right now are on variable products.
Second charge loans do not suit every need and it’s vitally important any potential borrower seeks professional independent advice from a qualified adviser. If you would like to discuss a potential loan please do contact one of our fully qualified advisers.