What are the risks of a second charge mortgage?
Second Charge Mortgage
Whilst getting a second mortgage can be a very tempting way to raise finance, there are several risks associated with getting another mortgage on top of your existing one. Anyone who has a mortgage already will know that there are severe consequences if you can’t keep up with repayments as mentioned below:
Repossession of your property
This is the biggest risk involved if you cannot keep up with your monthly collections. If you fail to make the monthly repayments for your mortgage on time and have used up your repayment holidays, the mortgage company can repossess one or two properties. The bank will sell the house at market value to recover your outstanding balance and pay you the difference of anything left over.
If you have two mortgages for two different properties, the loan providers will always collect from your initial mortgage first. As a result, you will always prioritize payments for the home where you live even if it means losing your second property.
Spiral of debt
If you have an existing mortgage on your home, the loan providers will be able to get an idea of your finances and whether you can afford a second home mortgage.
The financial burden of two mortgages can lead to a spiral of debt if the homeowners cannot keep up with repayment. Over a long period of time, it could lead to potential bankruptcy, IVA or a CCJ. Before applying, it is important to look carefully at your finances including your income and expenses.
If you are applying for a second charge mortgage to pay for a big purchase like a wedding or a car, it is important to look at the costs very carefully because if you go over budget, you may not be able to make your repayments on time or you may find yourself financially squeezed.
It is also worth estimating the cost of any emergencies or the possibility of you or your spouse losing your job and how this will impact your ability to repay on time.
If you can’t keep up with repayments, it could affect your credit rating
With an additional mortgage, there are extra monthly repayments and if you miss any payments without a ‘payment holiday,’ this will negatively impact your credit score.
Every time you make a payment, whether it’s successful or not, the information is sent from the mortgage company to a credit reference bureau such as Experian, Equifax or Call Credit. It is important that your payment history for any type of credit or loan is recorded because other lenders will have access to this information and will be informed of your payment history.
Having a negative mark on your credit file can make it more difficult to access finance elsewhere as lenders see you as a greater risk. Equally, a poor credit rating could make the cost of new loans more expensive as lenders adjust the interest rate to mitigate risk.
It could be better to remortgage
One mustn’t be lured by the sound of getting a second mortgage. Depending on your current mortgage terms, you could be better off getting a remortgage. This is something we also offer at Quiddi Compare – working with top mortgage providers in the UK, we offer a range of remortgaging deals. This involves switching your current mortgage to a different product either with a new or existing lender. The idea is that you may be able to take advantage of introductory deals offered by a new mortgage contract and be able to save hundreds or thousands of pounds in the process.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Some partners may charge you a fee for helping you find a Mortgage or Secured Loan or other services they provide. MAKE SURE you check with the company before agreeing to any service if they charge you a fee and what the terms are.
Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk QuiddiCompare does not charge a fee and does not provide any financial advice relating to mortgages. However we may on occasion receive commissions from IFA’s and mortgage providers, brokers and intermediaries for introducing you to them.
The content of this site is meant to be informational, and it should not be considered financial advice. – See more at:quiddicompare.co.uk/mortgages