Second Mortgage Pros and Cons – Complete Analysis

Looking for more information on a second charge mortgage? You’re in the right spot! Every month, over 6,900 people visit our website looking for guidance on secured loans. 

In this easy-to-read guide, you’ll discover:

• What a second charge mortgage is.
• The real cost of a poor second charge mortgage.
• How to work out your home’s worth (it’s simple!).
• The way a second charge mortgage functions.
• How to get a free second charge mortgage quote.

We understand that you might be worried about the details of a second charge mortgage. But remember, you’re not alone. We’re here to help you with clear and plain advice.

How does a second charge mortgage work?

A second charge mortgage borrows against the home equity you have built up by paying back some of your first mortgage (and possibly by rising property value). You might get approval for a second mortgage up to 80-90% of the value of your home equity as a lump sum, meaning you could get a huge loan that is not available elsewhere. 

However, because home equity is used as collateral, there is a real risk of losing your home if you do not repay. 

Once you have received the money, you start paying back plus interest through monthly repayments for a fixed term until the second mortgage has been paid off. 

Second mortgage pros and cons

Deciding whether to get a second mortgage is tough. There’s certainly a lot to think about. Below are some of the generic second mortgage pros and cons to help you decide. It is recommended to get professional personalised advice that will be relevant to your circumstances and situation. 

Is it hard to get a second charge mortgage?

Getting a second charge mortgage is usually a little more difficult than taking out a first charge mortgage because you now have bigger debts outstanding. However, this doesn’t make it impossible. 

With a large amount of home equity built up and a frequent income, lenders should not view you as too big of a lending risk. Each application will be determined by personal finances and your credit score. 

What is the point of a second mortgage?

You might be thinking why would anyone want a second mortgage. These mortgages help homeowners access large amounts of credit that can fund projects, big purchases or even be used to buy other property. 

Here are the most common reasons why people choose to get a second mortgage:

1. Consolidate debts with other lenders charging high interest
2. Complete home renovations that increase their property value
3. Buy property abroad or in the UK
4. Pay for private medical bills or education
5. Buy new cars or memorable holidays
6. To help younger family get on the property ladder

What are the benefits of a second mortgage?

The pros of using a second mortgage are:

1. Could grant you access to a high amount of credit.
2. You can avoid fees and charges associated with alternative equity release options. For example, remortgaging could involve early repayment fees on the first mortgage, which are not applicable when using a second mortgage. 
3. The loan is not restricted in use and you can use it how you please (see common reasons above).
4. Second mortgages are widely available in the UK.

What are the disadvantages of a second mortgage?

The disadvantages and potential pitfalls of a second mortgage are:

1. Second mortgages usually have higher interest rates than other mortgages, meaning you pay more to borrow.
2. It will take you longer to own the property outright by borrowing against home equity.
3. They’re not guaranteed just because you have home equity. Applications are subject to rigorous assessment. 
4. There is a genuine chance you could lose your home if you do not repay. 
5. If you cannot afford your mortgages, the second mortgage lender does not have priority over money raised from the property sale. You could repay back your first mortgage but not be able to pay all the money owed on the second mortgage, leaving you with a big debt. 

Is a second mortgage worth it?

There’s no simple answer to say if a second charge mortgage is worthwhile. Your suitability and benefits of using one may be different to another person considering another mortgage against their home. It’s essential to consider the facts against personal situations and employ the help of a mortgage advisor if needed. 

You can learn more about second charge mortgages and personal loans on the MoneyNerd blog!