What is a second charge mortgage and how can you apply for a second mortgage online? Below we have cleared up some confusion by answering some reader FAQs and telling you how to apply for a second mortgage online.
This is just one of our new series on second mortgages. Make sure you learn more about these mortgages easily with MoneyNerd!
Can you have two mortgages?
It is possible for someone in the UK to have two or more mortgages at one time. They may have two mortgages because they are buying two different properties at one time. In this case, they will have two first charge mortgages.
But you can also have two mortgages on the same property. This would mean having a first charge mortgage and a second charge mortgage.
What is a second charge mortgage?
A second charge mortgage is a mortgage on a property that already has a first charge mortgage. The first charge mortgage is taken out by the homebuyer to help them purchase the property. The second charge mortgage is an additional mortgage secured against home equity with separate monthly repayments.
Note, it’s quite common to use the terms second mortgage and second charge mortgage interchangeably.
If you have been continually paying back your first mortgage over many years, you will have built up home equity. If you then need to borrow money, using a second mortgage secured against your home equity can be beneficial. You could get a bigger loan and even lower interest – but this is not guaranteed as it will depend on your equity and your credit score etc.
Common reasons people choose to take out a second charge mortgage is to complete home improvements, consolidate debts or pay for big-ticket items.
What is the downside of a second mortgage?
The main downside of a second mortgage is that your home is at risk. If you fail to repay the second mortgage repayments then the lender can repossess the property and sell it. Any money would need to pay the first charge mortgage lender first and then the second mortgage lender.
The homeowner would receive any money leftover – if any.
How do I get a second charge mortgage?
Getting a second charge mortgage is possible from banks, building societies and specialist mortgage lenders.
Some experts consider a home equity loan or home equity line of credit (HELOC) as types of second mortgages; these financial products also let you borrow against your home equity. You may want to search for home equity loans and HELOCs as part of your second mortgage search.
Can you have two mortgages with two different lenders?
If you want a second charge mortgage, you can use the same lender that provided your first mortgage or you could look for a second mortgage from another lender.
You should take the time to search the whole of the market to find the more suitable and advantageous deals for you. If you’re confused and worried, you may want to consider mortgage advice services that search the market on your behalf. Try to use a “whole of the market” adviser so you don’t miss out on better deals.
Can I apply for a second mortgage online?
Some people prefer to speak with their chosen bank or building society in person, while others enjoy the convenience of applying for a second mortgage online, which is possible. You can often find home equity loans and home equity lines of credit online.
You can lodge your application online, but you might have to show your lender documentation in person by visiting a branch. The exact process will depend on the lender, how they work and your preferences.
Only use legitimate lenders that are authorised and regulated by the Financial Conduct Authority.
How to apply for a second mortgage online
Before you apply for a second mortgage online, you need to find the mortgage deal you want to apply for. You can do this yourself by taking the time to search your options and use generic repayment calculators.
Once you’ve found the mortgage you want. The application process will include various forms to complete on the lender’s website. You should prepare yourself by gathering lots of financial information, not limited to payslips, your employment contract and information about your first charge mortgage. Each lender’s online application system may differ.
Or you can use the services of a professional mortgage advisor. The latter will likely handle the application process on your behalf, either online or not.
Is it hard to get a second mortgage?
Getting a second mortgage is considered more difficult than getting a mortgage to buy a property. Adding more debt to a single asset is risky and therefore lenders are less willing to do so. However, it is far from impossible with many individuals and families securing second mortgages each year for a host of reasons.
You should also expect the interest rate on a second mortgage to be higher than the interest rate on your first mortgage. Although this is not certain, it is the norm, due to an increased debt to income ratio and because the first mortgage gets priority during foreclosure proceedings.
Can I get a second mortgage to buy another house?
Some people prefer to take out a second first charge mortgage to buy another property. But it is possible to take out a second charge mortgage on a property you have already bought to buy another house.
The loan amount you receive from the second charge mortgage could contribute to buying another home. This is quite common as some people often release equity so they can buy holiday homes or investment properties.
The more home equity you have built up, the better chance that this is possible.
Learn the pros and cons of second mortgages
This article is a good introduction to what second mortgages are all about. But before you start searching your options, it’s important to know a little more.
We’ve just published scores of guides all about home equity loans. Why not start by learning the pros and cons of home equity loans?