What Is the Difference Between a First and Second Mortgage?
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
Wondering about a second charge mortgage? This article will help you understand it better.
Each month, more than 6,900 people visit our website for advice on secured loans. So, you’re in the right place to get the facts.
In this article, we’ll explain:
- What a first charge mortgage is
- How a second charge mortgage works
- The cost of a bad second charge mortgage
- How to get a second charge mortgage
- Other options if a second charge mortgage is not for you
We know you might be worried about the details of a second charge mortgage. But with the right advice, a second charge mortgage can be a good choice, even if you have bad credit.
Remember, we’re here to help you make the best decision for your situation.
What is a first and second charge mortgage?
When most people buy a property they cannot pay the full price agreed from the outset. They therefore use a residential mortgage to raise the rest of the money to buy the property. This initial mortgage is also known as a first charge mortgage.
A second charge mortgage is when an additional mortgage is taken out against the same property in the future without the first mortgage being fully repaid.
What is the primary difference between a first and second mortgage?
The primary difference between a first and second charge mortgage is what these mortgages are secured against. With a first residential mortgage, the loan amount is secured against the property itself. But with a second charge mortgage, the loan amount is secured against home equity, which is not exactly the same as securing it against the property.
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 is the point of a second mortgage?
The reason many people choose to use a second mortgage is to access large amounts of credit and/or get a lower interest rate than other credit options, especially unsecured loans. The money is then used for scores of different reasons without restrictions.
Some of the most common uses of the money borrowed with a second mortgage are:
- Consolidating debts – the money is used to pay off multiple creditors so all debt is now in one place. However, this is only worthwhile if the repayment terms of the second mortgage are more favourable than the debts paid off, including fees.
- Home improvements – some use the money to pay for significant home renovations, such as new kitchens and bathrooms, loft conversions and conservatories. This usually adds value to the property too!
- Supporting family – the money may be used to help family members with their own financial problems, including buying their first property.
- Buy cars – some people use the money to buy a new vehicle.
- Pay for holidays – the money may be used to fund once-in-a-lifetime holidays or round-the-world trips.
- Education and medical expenses – a second mortgage can be used to help pay for private medical care and private or university education.
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Let’s not forget that if you are unable to repay then there is a real chance of being forced to sell your home to pay back the debts.
What is the downside to a second mortgage?
Choosing to take out a second mortgage on a property will make it take longer to pay off both mortgages and be an outright homeowner. Moreover, a second mortgage usually has higher interest than a first mortgage because the first mortgage has priority access to money if the home is sold.
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?
Polly
“This was by far possibly one of the nicest experiences I’ve had getting a secured loan.”
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Is a second mortgage worth it?
The worthiness of a second charge mortgage will depend entirely on personal circumstances and what the money is being used for. The answer to this is more clear cut for purposes like debt consolidation than it is for home renovations. The reason it may not be worth it is simply that second mortgages typically have a much higher interest rate than a first residential mortgage.
