CHARG­ING ON INTO A SEC­OND MORT­GAGE?

Glossop Advertiser - - Home Advice -

I nter­est rates are at all-time lows – with some mortgages hov­er­ing around one per cent. But some credit cards, high street store loans and other sources of credit re­main high.

So it can be tempt­ing to look at any in­creased value of your home and cash in on that – es­pe­cially as rates are a frac­tion of credit card and store loans.

You can opt to re­mort­gage – start all over again.

But that can in­volve charges and has­sles. An al­ter­na­tive is the “sec­ond charge mort­gage”.

These sec­ond mortgages have their uses but can have draw­backs. Be­fore sign­ing up, both con­sider the terms – and other choices.

Sec­ond charge mortgages legally have se­condary pri­or­ity be­hind your main (or first charge) mort­gage. But you can’t treat these loans more lightly – a sec­ond charge lender can ap­ply for re­pos­ses­sion, so you could lose your home if you fall be­hind even if you are up to date on your first loan.

Many bor­row­ers use them to fund home im­prove­ments, or some­times to pay off debts or even set­tle tax bills for which many lenders of­ten refuse cash. Sec­ond charges start at around £5,000.

The al­ter­na­tive can be to cash in on any in­creased value of your prop­erty with a re­mort­gage.

This is where you start again with a fresh loan.

Re­mort­gages can in­clude early re­pay­ment charges if you have a fixed rate and, if the new loan is a high pro­por­tion of the value, you might pay in­creased in­ter­est charges.

Bro­kers make af­ford­abil­ity checks be­fore you sign a sec­ond mort­gage but lenders are re­ally in­ter­ested in the value of your prop­erty rather than your em­ploy­ment sta­tus or credit rat­ing.

Like all loans, you need to en­ter into them with your eyes open.

You need to be aware of the pos­si­ble pit­falls.

David Blake at Which? Mort­gage Ad­vis­ers warns: “Al­though the mar­ket is grow­ing, you have less choice with sec­ond charge prod­ucts com­pared to stan­dard mortgages.

You also need to con­sider the im­pact of any fu­ture in­ter­est rate rises on your abil­ity to re­pay both your ex­ist­ing mort­gage and the new sec­ond mort­gage.”

Sec­ond mortgages are more ex­pen­sive – typ­i­cally start­ing around 4 per cent – and can come with fees. In some cases, it is cheaper to re­mort­gage, es­pe­cially if you want to bor­row a sub­stan­tial sum.

TOP TIPS FOR RE­MORT­GAGES

1. You will have to show the lender that you can re­pay – and could con­tinue to re­pay if in­ter­est rates rose.

2. Al­ways take ad­vice be­fore you sign any­thing.

3. You can set up a sec­ond mort­gage with an end date to co­in­cide with your fixed rate first mort­gage.

4. If you sell your home, the first mort­gage is paid off to start with. If you can’t pay the sec­ond loan, then the lender can pur­sue you through the courts. And that would also make it more dif­fi­cult for you to get a new mort­gage in the fu­ture.

5. Al­ways look at other op­tions. It might be cheaper to take the early re­pay­ment charge hit and re­mort­gage – es­pe­cially if you qual­ify for the cur­rent low rates.

6. Con­sider un­se­cured loans which would not cause your home to be re­pos­sessed if you de­fault.

Con­sider all the choices be­fore go­ing ahead with a sec­ond charge mort­gage

IN AS­SO­CI­A­TION WITH

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