Fast Second Mortgage – Everything You Need To Consider
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You know you want a second mortgage, but can you get a fast second mortgage?
We explain all the important details about second charge mortgages before looking at the timescale involved when getting a second mortgage approved.
What is a second charge mortgage?
A second charge mortgage is a secured loan that uses home equity as collateral within the credit agreement. For this reason, you may be able to get a much larger loan than using alternative credit options and secured loans. It is a second mortgage placed on a property with some of an existing first charge mortgage still to pay.
Because the equity in your property is used to secure the mortgage, your home may be repossessed and sold to clear the debt in the event you cannot keep up repayment, which may occur if you lose your job in the unforeseeable future.
These second mortgages may also be known as home equity loans, home equity lines of credit and homeowner loans. Only consider any of these with a lender that is authorised and regulated by the Financial Conduct Authority (FCA). Moreover, always think carefully when you consider taking out a second charge mortgage. Your family home is at risk.
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How does a second charge mortgage work?
A second charge mortgage works by providing the homeowner with a lump sum that is then repaid over a fixed term consisting of monthly repayments. It is paid back separately to the existing mortgage, even if both loans are provided by the same lender.
Once all payments have been made the loan is cleared and closing costs might be due. If you repay early you may have to pay early repayment charges.
There is an exception to the above, namely when using a home equity line of credit (HELOC). These are considered a type of second charge mortgage and pays out in instalments over a draw period before principal repayments start becoming due.
Because the loan is secured against the equity in your home, the amount of equity you have will influence the amount of money you can get in the loan. As does your personal finances and credit rating.
Where can you get a second mortgage?
Second mortgages are available from big banks that offer everyday banking services, as well as online banks and lenders, specialist mortgage lenders and possibly some building societies. Only ever consider a financial product or service with a lender that is authorised and regulated by the Financial Conduct Authority.
What is a fast second mortgage?
A fast second mortgage is a second charge mortgage lender that promises to make a decision on your application. It would be considered fast if you get a decision within the same day or a couple of days.
Be aware that some lenders advertise their application processes as swift but do not guarantee a decision or the money paid within any sort of timeframe. Busier periods could mean your application takes just as long as any other lender.
How long does a second mortgage take?
The standard timeframe to get a decision on second mortgages is around five working days to two weeks, depending on the lender and if there are any unique circumstances within the application.
What can slow down a second mortgage application?
Applications for second charge mortgages can be slowed down if the lender needs to value your home. The reason they may need to do this is so they can verify how much home equity you really have. This is calculated by subtracting your first mortgage remaining balance from the current property value – not how much you paid for the property.
Because you’re borrowing against home equity and they don’t want to overborrow irresponsibly (potentially causing negative equity!), they need to know your home equity exactly. The official term for a property valuation is an appraisal and you might have to pay a fee.
Should I use a mortgage broker?
A mortgage broker or any other commercial service offering to search your options could make the process faster. These professionals are able to look across the market with their expertise and find options quicker. Some will even help you lodge your loan application.
You will need to pay for these services and the costs may not be worthwhile just for getting the mortgage application completed quicker. You could use comparison websites for free to make your independent research quicker.
How quickly will I receive the loan amount?
Once approval has been granted and the credit agreement signed, the loan could hit your bank account within one or two working days. If you already have a current account with the bank you have applied to for the second mortgage, you could receive the funds within an hour.
The benefits of using a fast second mortgage
Second mortgages have the potential to help homeowners access larger loans at a competitive interest rate. Using a fast second mortgage will help you get the money quicker.
This may be a benefit if you need the money urgently. One of the most common reasons for using a second charge mortgage is to consolidate debts. Debt consolidation is when multiple loans and credit cards are paid off with the new loan, meaning the debtor now only has to make one monthly payment. Moreover, the new larger loan should have a lower interest rate compared to the rates paid on the other smaller debts.
Getting the money quickly could be of benefit to people wanting to consolidate debts because it could stop those debts from continuing to grow and accumulate more interest.
Others may just prefer to get a fast second mortgage to buy a new car or get a new kitchen that is on offer for a limited time only. Home improvements are a common reason to get a second mortgage, but keep in mind that deals and offers usually come around again.
The risks of using a fast second mortgage
Using a second charge mortgage increases the debts against your home and always includes an element of risk. Using a fast second mortgage that promoted the lender’s speed rather than interest rates might mean sacrificing more favourable repayment terms for this level of efficiency.
Moreover, some lenders may advertise fast second mortgages but in reality, they are no quicker than other lenders. They use the speed of processing as a USP because they cannot compete with mortgage rates advertised with other lenders.
Should I take out a second mortgage quickly?
Unless you’re trying to consolidate debts and are on a tight deadline to make it affordable, using a fast second mortgage may not be the best idea.
On the contrary, you should prioritise doing your research and finding a second mortgage that meets your preferences and individual circumstances. Apply for a second mortgage that works for you, not just one that can be processed quickly. It could save you money.
Is it hard to get a second mortgage?
The criteria to apply for a second mortgage may include age restrictions and require you to be a tax resident of the UK. You’ll also need enough home equity to borrow against as you cannot borrow against all your equity but may need to take out a minimum amount to use these loans.
Your application will provide the lender with details about your income and existing debts, including your current mortgage debt. They use this information as part of their affordability checks to make sure you can keep up repayments comfortably.
And they will check your credit score to see how you have managed repayments in the past with other lenders.
It is generally considered easier to get secured loans because the lender can recover the debt with less complexity if you don’t keep up repayments. However, because you have an existing mortgage debt already, the lender may think the second mortgage is unaffordable. It all comes down to personal circumstances.
What credit score is needed for a second mortgage?
There’s no credit score that will guarantee you get a second mortgage. Most of the time lenders will look to approve people with a fair, good or excellent credit score, starting at around 700 – but not exclusively. Each lender applies its own tests to make a decision.
Can I get a second charge mortgage with bad credit?
If you have bad credit you could still get a second charge mortgage, and that includes a fast second mortgage. The fact the loan is secured means some lenders will overlook those with a credit score below average. If you have a really low score you may not be able to get any credit until you manage to improve it.
There are even some lenders now advertising bad credit second charge mortgages.
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