> Second Mortgage - UK Guide
In a nutshell
A second mortgage adds an extra mortgage on to your original home loan product or replaces your current loan.
Best Mortgage For
Any home owner that wants to use an additional mortgage to raise finance and those looking to switch deals or lenders to get better rates and deals.
You'll have as much choice of mortgage type with a second mortgage as with your original product. So, you can opt for a repayment mortgage or an interest only loan and tack on all kinds of standard deals at the same time. These deals include fixed and variable rates, capped rates, discounts and trackers. Once your deal is over (they generally last for between 1-5 years) then you'll be moved to either a variable or tracker rate.
Typical Amount to borrow
Your choices here will depend on the lender you choose and the reason why you want a second mortgage. Standard income rates, for example, are currently averaging between 3-5 times a single salary and 2.5-3 times joint salaries at the moment - but some lenders will allow you to borrow more. However, lenders may also look at your outgoings, property value and existing equity depending on what you want the second mortgage for. It is possible to borrow more than your property value here - some lenders will let you borrow 125+%.
If you're remortgaging for 100%+ then you won't need a deposit, otherwise standard industry terms will apply - these start at 5%. Again, this depends on the lender and deal you choose. But, if you have equity in your property at the moment, chances are you won't have to find the deposit as it will already be there.
If your second mortgage is being taken out to raise extra cash then your biggest benefit will be found in the interest rates charged on your borrowings. Here you can either increase your existing mortgage or release some equity from your property - in either case, you'll be able to take advantage of the fact that mortgage rates are the lowest of all loans products in the general lending sector. If the reason you're taking out a second mortgage is to switch to a new deal and/or lender then you could find yourself saving a lot of money in both the rates you'll be charged and in your repayments. This could save you significant sums over the life of your mortgage.
What to look out for
Whilst many lenders will pay any associated fees (arrangement, legal and valuation) or will subsidise them when you take out a second mortgage, some won't and you may have to pay them yourself. You need to weigh up whether these costs will be more than the savings you'll make (if you're switching deals) before you come to any decision. You may also find that you tied yourself into your lender when you took out your original deal. This may also have an impact on your costs when you take out a second mortgage as buying yourself out of the deal may cost you more than you'll be able to save. Again, you need to check this first before going ahead. One of the big advantages of taking out a second mortgage to raise some extra cash is the fact that the term of your new loan may be much longer than it would be for a standard loan product. With a mortgage, you pay back for longer periods than those attached to standard loan products. This can help keep repayments low, but also adds to your overall costs as you'll be making repayments for longer. And, adding to your mortgage in general will mean higher repayments, so you should be sure that you can afford any increases.
Equity release may be a suitable alternative if you're looking to raise extra money.