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An overview of second charge loans

A second charge loan is basically a loan secured against the equity in your property. However, they are often confused with re-mortgaging. Whilst a re-mortgage product allows you to pay off your existing loan and still have just one mortgage, a second charge loan is completely separate from your original mortgage.

A mortgage is secured against the property you are purchasing, but a second charge loan can be used to raise extra funds and be secured against the equity on any property which you own. When you apply for a standard mortgage, your application will be assessed on your ability to afford repayments, credit rating, your income and size of the deposit. A second charge loan will still require credit and affordability checks, but will be based on the equity you have in your property.

There are some instances where a second charge loan would be preferable to re-mortgaging. If you have a fixed rate deal with a low rate of interest and penalty charges for exiting the deal early, you may find that a slightly higher rate of interest on a second charge loan is cheaper than a re-mortgage. Early redemption fees can be very high, sometimes thousands of pounds, so it is crucial to calculate overall costs. A CeMAP qualified mortgage adviser can help you to decide if a second charge loan is a more suitable option for you.

Taking out a second charge loan for debt consolidation can be an expensive option, as you will pay interest on the debt over a much longer term. It may be better to consider paying off the debts rather than taking on a secured loan.

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