Second Charge Mortgage Debt Consolidation – Guide

Are you thinking about a second charge mortgage for debt consolidation? You’re in the right place! Each month, over 6,900 people visit our website for advice on secured loans. 

In this easy guide, we’ll explain:

• What debt consolidation is.
• The truth about a bad second charge mortgage.
• Why debt consolidation might be a good idea.
• If you can put all your debts into a new mortgage.
• The risks and benefits of second charge mortgage debt consolidation.

We understand your concerns; some of us have been in the same boat. But don’t worry; we’re here to help with clear and simple advice.

Why consider debt consolidation?

There are two main benefits of debt consolidation when it is done right. The first is that it makes monthly debt repayments easier. Instead of having to keep track of multiple repayments each month and at different times of the month, going forward, you’ll just need to repay one lender. This makes it easier to stay on top of your finances and budget for debt repayments. 

The second benefit of debt consolidation is that it should make repayments cheaper. By taking out new credit with a lower interest rate compared to the amount of interest payable on the existing debts, you can save money on interest. 

However, you should also factor in any other fees that may be applicable, such as early repayment charges on the existing debts for paying them off earlier and possibly fees associated with the new larger credit taken out. If you don’t factor these potential costs in, you could make debt consolidation more expensive. 

Can I consolidate my debt into a new mortgage?

It is possible to consolidate your existing debts into a new mortgage. This could be achieved in one of two ways:

1. By remortgaging your existing mortgage to borrow more and use the money to pay off existing debts.
2. By taking out a second mortgage on the same property by borrowing against the equity in your home. This is known as a second charge mortgage. 

In either case, you should think carefully before securing debts against your home within a new mortgage. And only consider a new or second mortgage from a lender that is authorised and regulated by the Financial Conduct Authority (FCA). 

Second mortgage for debt consolidation

The alternative option is to take out a second mortgage on the same property by borrowing against your home equity separately. The advantage of this is that your first mortgage will remain active, and you will not need to pay any early repayment fees on it by remortgaging – but you may need to pay other fees associated with the second mortgage. 

Second charge mortgages are borrowed against your home equity, so the amount of equity you have will determine how much you can borrow. Once you take the second charge out, the money can be used to pay off all credit cards and loans, leaving you with just two monthly repayments: one for your residential mortgage and one for your second mortgage. 

This forum user on MoneySavingExpert is thinking about getting a second charge mortgage and is looking for advice.

Why consider second charge mortgage debt consolidation?

Second mortgages can be an advantageous method of consolidating debts. Because they are borrowed against home equity, you might be able to borrow more with a second charge than you could with alternative credit options, which makes consolidation possible for people with significant debt. Although you may also want to check out other debt solutions first. 

Moreover, a second charge mortgage can offer competitive interest rates and help you save more on interest when consolidating. Other fees and charges should also be weighed into calculations to ensure a second charge will save you money overall.

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 are 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 home may be repossessed
2. Early repayment charges and closing costs usually apply
3. Increased risk of negative equity

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Will a second charge mortgage impact my credit score?

Taking out a second charge mortgage could temporarily affect your credit score negatively because of the credit checks required by the lender. However, repaying any secured loan on time can have a positive effect and potentially make securing further credit easier in the future.

But remember that any defaults will further damage your credit score. Multiple applications in a short space of time can also negatively impact it.

The risks of second charge mortgage debt consolidation

The overarching risk of using a second charge to consolidate your debts is that your home may be repossessed if you cannot keep up with repayments. As second mortgages are secured against your home, not repaying gives the lender the right to seize your home and sell it if you don’t stick to the agreement. Thus, there is a genuine risk of losing your home if your personal finances change. 

Only consider second mortgages from lenders that are authorised and regulated by the Financial Conduct Authority to avoid scams.