If you’re a homeowner and you’re looking to borrow money, you might be considering taking out a second mortgage.
They can be a cost-effective way to borrow and, if you’ve had trouble getting accepted for other forms of credit, it might be something worth thinking about.
However, there are risks associated with second mortgages, as you could lose your home if you don’t keep up with the repayments. That’s why it’s important to only borrow money against your home if you’re as sure as possible that you’ll be able to afford to repay it.
Second charge mortgage
Second mortgages are also known as homeowner loans, secured loans and ‘second charge’ mortgages – that’s because the lender has a second claim to your property, after your mortgage lender. They’re typically used for larger amounts of borrowing, starting from £10,000 and up to as much as £250,000. Because you’re borrowing a large sum of money, you’ll usually borrow over quite a long term – from five years up to 30 years. You can borrow the money for a variety of reasons but some of the most common uses include funding home improvements, debt consolidation, or the purchase of a car.
To be eligible for a homeowner loan, you need to have equity in your property. If you’ve owned your home for a while (so you’ve paid off some of the existing mortgage) or if house prices in your area have risen then you should have equity that you can borrow against.
A second mortgage might be something to consider if you’ve had problems managing credit in the past, like late or missed payments. Lenders will be able to see these on your credit history and might be unwilling to let you take out a personal loan, in case you default on the monthly repayments. Second mortgages give your lender extra security, so they could be more willing to accept you even if you’ve got a patchy credit history.
What to consider
As we’ve mentioned, you need to think carefully before taking out a second mortgage as you could lose your home if you don’t keep up with the repayments. Take a look at your finances and see how you’re coping with your current outgoings and mortgage payments. Are you only just able to afford these each month? Or do you have some disposable income left after you’ve met all of your financial obligations? If your budget is already quite tight, it’s probably a good idea to save up instead of borrowing more money.
However, if you’ve looked at your budget and decided you can afford a second mortgage, Ocean has homeowner loans available from a panel of lenders, so it’s worth getting in touch to get a quote.
Disclaimer: All information and links are correct at the time of publishing.