Second Mortgage to Pay Off Debt – A Complete Guide

Are you wondering if a second mortgage can help pay off your debt? You’re not alone; many people ask this question. In fact, over 6,900 people visit our website each month for advice on secured loans.

In this easy-to-understand guide, we’ll explain:

• What a second mortgage is.
• The risks and rewards of a second charge mortgage.
• How much equity you need for a second mortgage.
• If you need an appraisal for a second mortgage.
• How a second mortgage can help pay off debt.

We get it, dealing with mortgages can be tricky. But don’t worry; we’re here to give you clear and simple guidance to make your financial journey easier.

Can I get a second mortgage to pay off debt?

You can take out a second mortgage to pay off debt. Scores of homeowners decide to pay off single or multiple debts with the money they can borrow against their home equity. Doing so can merge your debts into one convenient place, making it easier to budget for your repayments. And it can help you pay a lower interest rate. 

This is known as debt consolidation. 

Should I take out a second mortgage to pay off debt?

If a second mortgage will help you streamline debt repayments and at the same time save you money, you should seriously consider using this debt consolidation method. Whether it is worthwhile or not will depend on the numbers. Uncovering what type of second mortgage deals you can get is not always easy because they are advertised with representative APR based on 51% of applicants only. What deal you’re offered may be different. 

You may want to employ the help of money advice groups of commercial finance services to assist you in searching and comparing the market. However, these services also come at an upfront cost or you end up paying commission. 

You should also consider alternative debt consolidation methods that may provide comparative rates and fees with less risk to your property. We discuss some of them towards the end of this guide. 

What debts can you pay off with a second mortgage?

Using a second mortgage to pay debt is possible on any kind of personal debt. From credit card debts to personal loans and store cards, there isn’t a restriction on what type of debts you can pay back through the money raised from a second charge mortgage. 

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The pros and cons of using a second mortgage for debt consolidation

The benefits and disadvantages of using a second mortgage to pay off debt can be determined by personal circumstances. Therefore you should always consider your own situation when making credit and debt consolidation decisions. 

Yet, here are some of the more generic pros and cons of using second mortgages for debt consolidation.

The pros

1. Potential lower interest – the interest rate you will need to pay on your second mortgage can be much lower than the interest rates of your credit card and loan debts. Lenders typically offer lower rates when the individual is securing the credit agreement with an asset, such as home equity. 
2. Merges your debt – putting your debts into one location can make budgeting for the repayment easier than having to juggle multiple debt repayment dates throughout the month. 
3. Larger borrowing – your home equity could be significant enough to allow you to borrow a large amount, helping you to pay off many debts. This could mean consolidating a large number of debts more easily (if required). 
4. Avoid early repayment fees – because you add a new mortgage rather than remortgage, you are not subject to early repayment fees on the first one. This is not likely the case when you choose to remortgage for debt consolidation. 

The cons

1. You are putting your family home at risk – by consolidating debts into a second mortgage you are putting your property on the line. If you fail to repay a second mortgage debt then the property may have to be sold to repay. Although creditors of smaller debts can chase you to court if you don’t pay, they cannot force you to sell without a charging order. It’s more likely they will use bailiffs first and you won’t have to sell the property. 
2. Second mortgage fees – second mortgages may avoid early repayment charges but they may still come with additional fees and expenses. For example, at the end of the second charge mortgage, you could have to pay closing costs equating to hundreds or thousands of pounds. 
3. Accessibility – if you have multiple debts or arrears, there is a chance you could have a poor credit score. This may stop you from accessing more credit, including a second mortgage. You may prefer to search for bad credit debt consolidation loans in these instances. 

Does a second mortgage hurt your credit?

Taking out a second mortgage will not necessarily harm your credit rating. However, failing to keep up with monthly payments will result in the lender recording defaults on your credit file, which will cause your credit score to decrease. Not paying back second mortgage payments in full and on time puts your home at risk. 

Can I take out a mortgage to pay off another mortgage?

It is possible to take out a mortgage to pay off another mortgage. This is known as remortgaging and is usually done to secure more favourable repayment terms on a new deal.

Remortgaging works by switching your first mortgage for another mortgage, meaning you still only have one mortgage to pay back – unlike when taking out a second mortgage. This is completed by searching for a mortgage lender that is willing to lend you the money that clears the debt on your first mortgage. 

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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Remortgaging for debt consolidation

An alternative possibility is to remortgage to pay off debt. Instead of remortgaging to just pay off the first mortgage with an existing lender, you ask the new lender for a greater amount of money which is then used to pay off other debts, such as a credit card or loan debt. 

For example, if you have an existing balance of £100,000 on your first mortgage, you could remortgage with a £120,000 new mortgage, giving you an additional £20,000 (minus fees) to pay off debts. 

The drawback of remortgaging for debt consolidation is that you may be subject to an early repayment charge on the first mortgage. However, a second mortgage may cause you to incur additional fees as well, such as more closing costs to pay. You’ll need to weigh these up when considering remortgaging or a second mortgage to pay off debt. 

Do you need an appraisal to get a second mortgage?

An appraisal is an official valuation of your property and is used to accurately work out your home equity. Because property prices can change over time, using the amount you paid for a property – even if recently – is not an adequate way of knowing how much it is currently worth.

You’ll probably need a property appraisal when applying for a second mortgage which may be covered by you, the lender or both. Sometimes an appraisal may not be requested, but it could be in your interest to still opt for one, especially if you think your property and therefore your home equity is being undervalued. 

If you’re not planning on borrowing against much of your home equity, it’s less likely to be needed when you take out a second mortgage.