Default on your Second Mortgage – What’s The Risk?
Representative example: If you borrow £34,000 over 15 years at a rate of 8.26% variable, you will pay 180 instalments of £370.70 per month and a total amount payable of £66,726.00. This includes the net loan, interest of £28,531.00, a broker fee of £3,400 and a lender fee of £795. The overall cost for comparison is 10.8% APRC variable. Typical 10.8% APRC variable
Representative example: If you borrow £34,000 over 15 years at a rate of 8.26% variable, you will pay 180 instalments of £370.70 per month and a total amount payable of £66,726.00. This includes the net loan, interest of £28,531.00, a broker fee of £3,400 and a lender fee of £795. The overall cost for comparison is 10.8% APRC variable. Typical 10.8% APRC variable
Are you curious about what happens if you can’t pay your second mortgage? You’re not alone. Every month, over 6,900 people visit our website to learn about secured loans.
In this article, we will clearly explain the risks of not paying your second mortgage based on the 2023 laws in the UK.
We’ll discuss:
- What a second mortgage is and how it works
- How to work out your home’s value for second mortgages
- The real cost of a bad second charge mortgage
- If a mortgage company can take your home for a second mortgage
- What happens if you can’t pay your first or second mortgage
We know that this is a tough time, but we’re here to help you understand your options.
Can a mortgage company foreclose on a second mortgage?
Foreclosure is when a lender has to sell a property because the homeowner has not kept up with repayments as agreed. The money raised from the property sale is used to pay back all creditors with an interest in the property and any remaining money (if any) is given back to the homeowner.
A second mortgage lender can start foreclosure proceedings if you do not keep up with your second mortgage repayments. This is one of the biggest risks when getting second mortgages, i.e. non-repayment could mean losing your home.
However, in this instance, it is the first mortgage lender that is repaid first, and any remaining money is paid to the second mortgage lender and then the debtor. Second mortgages are always ‘junior’ to first mortgages.
If the property value has decreased and the second mortgage lender might not get all of its money back, they may choose to try and recover the money in a different way. The whole process is complex and lengthy. It’s best to avoid this situation if at all possible.
What is a second mortgage default?
A second mortgage default is when you fail to make a payment on the second charge mortgage i.e., you default on the payment.
If you miss a payment, you will receive notification from the lender to make the payment immediately. If you still do not pay, the missed payment will be classified as a default, and you may not remove the charge from your property. There are rules on what makes up a default.
Lender |
APRC |
Monthly payment |
Total amount repayable |
|---|---|---|---|
| United Trust Bank Ltd | 5.99% |
£218.73 |
£26,247.92 |
| Pepper Money | 6.86% |
£220.24 |
£26,429.17 |
| Together | 6.95% |
£220.40 |
£26,447.92 |
| Selina | 7.5% |
£221.35 |
£26,562.50 |
| Equifinance | 7.7% |
£221.70 |
£26,604.17 |
| Spring | 10.5% |
£226.56 |
£27,187.50 |
| Loan Logics | 11.2% |
£227.78 |
£27,333.33 |
| Evolution | 11.28% |
£227.92 |
£27,350.00 |
Representative example: If you borrow £34,000 over 15 years at a rate of 8.26% variable, you will pay 180 instalments of £370.70 per month and a total amount payable of £66,726.00. This includes the net loan, interest of £28,531.00, a broker fee of £3,400 and a lender fee of £795. The overall cost for comparison is 10.8% APRC variable. Typical 10.8% APRC variable.
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What happens if you default on second mortgage?
When you default on a second mortgage the lender will record the default on your credit score, which will have damning consequences. A single default will not immediately result in the lender trying to repossess the property to sell it.
Most lenders recognise that people go through a short-periods of unforeseen financial instability. They will try to work with you to come up with a long-term solution that benefits all parties and avoids the need for foreclosure.
Second charge mortgage for all purposes
- Stuck paying high interest on credit card debts & loans?
- Looking to fund a home improvement project?
- Dreaming of finally taking the once-in-a-lifetime trip?
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What to do if you default on second mortgage
If you have a default on a second mortgage it is important that you start communicating with your mortgage lender. Explain what is going on and why you have defaulted. It is likely that they have a dedicated tea, ready to discuss your situation and work with you to come up with a solution. This may be lowering repayments for a set time or it may be something else.
The worst thing you can do is bury your head in the sand and hope the problem goes away. You won’t be the first person to call your second mortgage lender and have this type of conversation.
You may also want to speak with professional financial advisors, but these services come at a cost.
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Can my second mortgage be forgiven?
Second mortgages can only be forgiven by the mortgage lender, including home equity loans and home equity lines of credit (HELOC). However, this is unlikely. You do have some rights if your home has been repossessed and the lender has failed to sell it for some time. It’s best to get professional debt advice if you are going through this situation.
