A second mortgage is a loan that is secured on your property. However in the case of a sale it is repayable second to your actual mortgage. It is different to remortgaging because it creates an additional charge on your property. Many people use a second mortgage as an alternative to remortgaging. Especially if they have a mortgage that has a large penalty for early repayment. It can also be useful if you want to raise an amount of money quickly. For example you are having difficulties getting an unsecured loan. Read More >>
Things To Be Aware Of With A Second Mortgage
You can only get a second mortgage on a property that you already own or have a mortgage on. However, you do not necessarily have to be living in the property. This means that a second mortgage can be taken out on a buy to let property.
The maximum amount that you can lend for a second mortgage is usually based on the equity that you have. You will not normally be allowed to borrow more than the equity that the property currently has. This helps to reassure the lender that they would still get their money. Even after the first mortgage has been repaid. It is also worth bearing in mind that it you have a lot of equity. You do not want to borrow a larger amount than you actually need. As this will increase your repayment amount and cost you more in the long run.
If you sell your home before the second mortgage is repaid then the loan will have to be paid from the sale of the house. The first mortgage will have the first claim on the money. However any remaining money should be used to pay the second charge. If the money from the sale of the house is not enough to pay the second mortgage. Then the company are still able to pursue you for the money that is owed.
How To Apply For A Second Mortgage
You do not have to take out a second mortgage with your existing loan company. So you should shop around to get the best deal. When you have found a company that is offering what you are looking for you should begin the application process by contacting them by telephone. They are likely to send out paperwork that you will need to complete and return. They will contact you again if they need any further information.
You will need to provide the mortgage company with a detailed overview of your financial situation. They will want to know how much you earn and what your regular expenses are. You should provide documentation to support this such as bank statements, utility bills, existing credit agreements and wage slips. You should be prepared to answer any questions that the mortgage company may have about your financial situation. This may involve them delving quite deeply into your finances.
You will also need to provide details of your property and the existing mortgage that you have on this property. The lender will be particularly interested in the amount that you repay on your mortgage each month and how much is outstanding on your mortgage. Indeed they will probably ask you for your own valuation of the property as well as sending out an agent to make their valuation. They will use this information to work out how much equity is in your property and this will determine the maximum loan that you will be offered.
The lender may also want to know what the purpose of the loan is. There are certain things that they may not be comfortable making a loan for such as the funding of a new business. However, reasons such as debt consolidation, purchase of a new vehicle or home improvements are more likely to be accepted. You should bear in mind that a lender is within their rights to check that you have used the money as you said you would. They may ask for quotes for the the home improvements that you want carried out and in the case of debt consolidation they may make payments directly to the companies that you owe.