As a homeowner, there can be times where you will want to borrow money from your home without having to remortgage. Often this could be because you are in a fixed term and either need to release the funds or even port your mortgage to a new property whilst increasing the borrowing.

Reasons you may wish to release the additional funds could be things such as home improvements, consolidating debts, paying for a holiday of a lifetime, or even supporting the kids with a deposit.

What is a second charge mortgage?

A second charge mortgage is a type of mortgage taken out in addition to your original mortgage. It is secured against your property using the available equity as capital.

The reason it’s called a second charge mortgage is because the lender for your original mortgage has priority and repaid first should the property be repossessed. Because of the increased risk, a second charge mortgage generally has a higher interest rate than your first charge mortgage.

When it comes to the property itself, a second charge mortgage can be taken out on a property you do not live in (such as a second home or commercial property) if that is what’s required.

Why use a second charge mortgage?

You may wish to use a second charge mortgage to pay for things such as a wedding, fund the expansion of your business, purchase a car, buy an additional property or even move house where you are porting over an existing product during its fixed term.

As mentioned above, a second charge mortgage can avoid the need to pay early repayment charges that you may face when remortgaging. It may also be that your credit rating has gone down since you took out the original mortgage, so cannot access such favourable rates anymore.

Whilst a second charge mortgage may have a higher interest rate than your first charge, it is worth bearing in mind that the interest rate will tend to be lower than a personal loan or other unsecured debt.

How much can you borrow?

The amount you can borrow does depend on factors such as the requirements of, and permission from, your existing lender along with how much equity you have in your home.

Many lenders will cap the amount that they will lend as a percentage of the equity available so, for example, if this was 75% and your home was worth £250k and your existing mortgage is £150k, this leaves £100k of which £75k could be available.

Each lender will then do their own affordability calculation before confirming the total amount that they would be happy to make available.

Are there any disadvantages?

If you choose to opt for a second charge mortgage, you will have two mortgages to repay and failing to keep up with repayments could mean your home gets repossessed.

In addition, the rates for second charge mortgages do tend to be higher than the first charge and if you decide to move, both mortgages need to be repaid meaning you could find yourself short on funds for a deposit.

As with any financial product, it is crucial to get the right advice and that’s why we are here. Our team are on hand to recommend the most suitable solution for your situation. If you have any questions regarding second charge mortgages, simply contact us and we will be more than happy to help.