What is a second charge mortgage calculator and do I have to use one? These are just two of many questions we’ll be answering in our complete second charge mortgage guide, with an emphasis on using a loan calculator as part of your search. 

You should think carefully before securing another loan against your home – and we can help you do just that here. 

What is a second charge mortgage?

A second charge mortgage is a loan taken out by homeowners by borrowing against their home equity. The second charge mortgage is an additional mortgage added to a property with an existing mortgage used to help purchase the property. The homeowner will need to make separate monthly payments on their first and second charge mortgages, sometimes to different lenders. 

A second charge loan may refer to one of many other loans, depending on how they are advertised by UK lenders. For example, a second charge mortgage is also known as a home equity loan, HELOC or homeowner loan. 

If you decide to take out any of these financial products, you may want to get professional advice first and only use advisors and lenders that are authorised and regulated by the Financial Conduct Authority. 

What is home equity?

Second charge mortgages use home equity as collateral in the credit agreement, and by extension use the property as collateral. Home equity is the amount of your home you already own without debt attached, which is accumulated either by paying off your residential mortgage or by increasing the value of your home. 

For example, someone with a £200,000 home with an outstanding £100.000 mortgage will have 50% home equity (£100,000). 

Is a second charge the same as a second mortgage?

A second charge is widely known as a second mortgage, but calling these loans a second mortgage can cause confusion. Some people may want to get a second mortgage to buy a second home, such as a holiday home or rental investment. In this case, they are looking for another first charge mortgage, but may also be referred to as a second mortgage. 

So, although a second charge loan can also be called a second mortgage, the term may be referring to a different type of mortgage. 

How does a second charge work?

Most second charge loans provide the loan as a lump sum payment. A HELOC does not; it provides the loan amount in instalments over a draw period where only interest is payable during this timeframe. 

Once the loan has been paid out or the draw period ends, the borrower must make monthly payments to clear some of the capital amount borrowed and a rate of interest (plus possible fees). These payments last for a fixed period until the whole loan has been repaid. Closing costs may be due to finalise the loan at the end of the credit agreement. 

If you cannot keep up repayments on your mortgage or second charge for whatever reason, your home may be repossessed by the lender and then sold to clear the debt. Second mortgages come with this element of risk like other secured loans. 

Always think carefully before securing other debts against your home. If you do not keep up repayments, your home may be repossessed and then sold to pay off your arrears and outstanding loan balance. 

The pros and cons of second charge mortgages

The pros:

  1. Ideal if you want to borrow more than what is offered through other loans due to the loan amount being partly determined by your amount of equity. 
  2. You could find a competitive interest rate
  3. If you keep up with repayments your home is safe

The cons:

  1. Missing repayments on a mortgage can mean your may be repossessed
  2. Early repayment charges and closing costs usually apply
  3. Increased risk of negative equity (can be mitigated through responsible lending). 

Second charge mortgage rates

Second charge mortgage rates can differ widely on the UK market. You will find some low single-digit interest rates and find others well above 20%. To secure the lowest interest rates, you’ll need to search for the best lenders at the time you’re ready to apply, and also ensure you have a decent credit rating. 

What is a second charge mortgage calculator?

A second charge mortgage calculator is an online calculator that works out how much your monthly repayments will be when taking out the second charge mortgage with the terms you require. 

How does a second charge mortgage calculator work?

A second mortgage calculator works by asking the user to enter how much they want to borrow. Some second mortgage calculators will ask about your home equity to verify that the loan amount you need is possible, based on its loan to value ratio. You’ll also need to enter how long you want to repay the secured loan, ranging from a few years to decades.

Once this information has been entered, the calculator will work out how much your monthly repayments would be using a representative interest rate for the amount needed and the loan term. You’ll be able to see a full breakdown of the loan costs. 

Modern second charge calculators use a slider scale to change how much you wish to borrow and how long you want to repay. This makes it quick and easy to see how repayments are predicted to change based on different amounts and loan terms. They are a good way to research the market and compare second charge mortgages. 

Where can I use a second mortgage calculator?

Second mortgage calculators are found on the websites of lenders offering these products, such as banks. They are typically found on the same page advertising the secured loan to make them easily accessible. 

It should be said that second charge mortgage calculators are less commonly found compared to generic unsecured loan and secured loan calculators. This may be due to banks wanting to discuss these loans in person rather than letting you apply easily online. 

Is a second charge mortgage calculator accurate?

Second charge mortgage calculators offer little personalisation. They are programmed to work out monthly repayments using the lender’s representative example rates only. The representative example is considered the fairest way to advertise loans to a mass market. It is based on 51% of successful second mortgage applications. 

For example, if the lender’s representative example is 7.9% then at least 51% of applicants received this or a lower rate. But that also means that 49% of people were offered a higher rate than 7.9%, usually due to their personal finances or a lower credit score than average. 

Therefore, a second charge mortgage calculator is not always accurate. If you have a bad credit history with a low credit rating, there is a higher chance that these calculators will not be as accurate for you. When comparing options in these situations, it’s also worth noting the lender’s maximum representative rate, which is the highest rate you can be offered. 

Do I have to use a second charge mortgage calculator?

If you would prefer not to use a loan calculator as part of your search, you don’t have to. As they are not accurate for almost half of users, you may not feel the benefit of using them, especially if your personal circumstances and credit score are different to most applicants. 

Using a mortgage or financial advisor to search for a deal will mean not having to do any research yourself. Just make sure the professional service provider that you opt for is authorised and regulated by the Financial Conduct Authority. 

How long does a second charge mortgage take?

A second charge mortgage could take anywhere from three weeks to two months to get approved. Securing debts against your home is known to take longer than other loans because the lender may need to complete more checks and might need to revalue your home to accurately assess the equity in your property. 

Sometimes an appraisal of your home is not needed and the second charge loan is approved quicker. 

Can a lender refuse a second charge?

As part of responsible lending, and as stated by the Financial Conduct Authority, lenders must robustly assess your suitability for any loan and ensure the loan amount is affordable to you. Lenders can refuse your application if they believe the second charge would put pressure on personal finances and possibly even cause you to struggle. 

When a lender considers your second charge loan application, they will assess your regular income against ongoing debts and the projected second charge mortgage. If taking out a second charge would push your debt repayments over a certain percentage of your income, the repayments on your second charge loan will be deemed unaffordable. 

They might also refuse your loan if you have a bad credit rating, simply because they think there is a risk you won’t pay them back based on how you have handled finances and debts previously.  

Can I get a second charge with a poor credit score?

But just because a low credit score can hold you back, it doesn’t mean it always will. There are many lenders that still provide home equity loans and HELOCs to people with unsatisfactory or bad credit. If you are approved for a second charge with a lower credit score, you’ll likely be offered a higher interest rate. 

You can even find some lenders targeting their ads to people with poor credit. They advertise a product known as a bad credit loan, which you can read more about right here

Because it is a secured charge loan using the equity in your property – and therefore your property – as collateral, you might have more joy trying to get these loans with bad credit compared to unsecured loans. 

Can I remortgage if I have a second charge on my property?

You can still remortgage a first charge mortgage (the mortgage you took out to buy the property) if you have a second charge mortgage on the same property. You’ll be able to remortgage for the same amount as your current mortgage to find a better deal. 

And you may even be able to refinance your existing mortgage to borrow more against any available home equity, provided the lender allows it. There is more chance this is possible if you didn’t borrow against a significant proportion of your equity with the second charge, and/or if the value of your home has increased.

Uncover more second charge mortgage help!

Hopefully we’ve answered your pressing questions on second charge loans and specifically about second charge mortgage calculators. Before you take out a second mortgage or start securing other debts against your home, learn more about the risks and rewards at MoneyNerd.

We have a host of other new articles discussing these loans with top hints and tips. Check them out 100% for free now! 

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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