SECOND MORTGAGE
Usually a loan of between £3000 and £100,000 is available to a borrower by taking out a second mortgage on his property. This gives the lender security and generally allows the borrower to negotiate a lower interest rate and repayments that are convenient to him.
Depending on the size of the loan the period can be between three and twenty five years. The circumstances of the borrower may change and he may wish to settle the loan earlier than arranged in which case a penalty charge may be made. Different lenders may have different policies with regard to early repayments.
The sum borrowed will obviously be subject to interest, at a rate which is measured by the Annual Percentage Rate (APR), and the term available will all depend on your own circumstances and the lenders view of your ability to repay your loan. Some lenders will lend 125% of the value of your property (including the amount outstanding on any original mortgage).
APR's are quoted as a typical rate by some lenders and these are only a guide, as any exact rate offered will be on an individual basis. The best way of finding out how competitive a deal is, is to compare the APR's of different loans.
A second mortgage, being a secured loan, is obviously going to be easier to acquire than an unsecured loan. By securing a loan on your home the lender is more likely to be willing to supply the loan. In the event that the borrower is unable to make repayments the lender is of course protected. Obtain a loan by all means but remember that it must reduce your outgoings sufficiently to enable you to make the repayments comfortably.
Borrowers who have recently changed jobs, are self-employed or who have a poor credit history will find it easier to obtain a second mortgage. It is also more appropriate for larger amounts where a greater period is required to repay the loan.
Applying for a second mortgage:
The Consumer Credit Act regulates loans under £25,000, which requires a consideration period of seven days to be given to ensure that you are happy with all the terms and conditions that apply, but in this and in cases of larger amounts application can be made at branch offices, the lender's web site or by written application.
Applications are assessed by the lender considering three main points, which are as follows:
1. Income and affordability - to determine whether or not payments are capable of being maintained by the borrower to repay the additional finance.
2. Equity - to assess how much the loan can amount to given the value of the security offered.
3. Credit status - to take into account county court judgments, mortgage arrears and defaults.
Your home may be repossessed if you do not keep up repayments on your mortgage.
All loans and mortgages are secured on property. Think carefully before securing other debts against your home.
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