Second Mortgage

Second mortgages are only available to people who already have a mortgage and want to release some of the equity built up in their home to raise money. For this reason second mortgages are especially suitable for borrowers who have already paid off a proportion of their mortgage capital. Borrowers repaying interest only mortgages may still be able to borrow a second mortgage if their home has experienced an increase in value over the mortgage term.

A second mortgage is basically a loan separate to your current mortgage that is secured against your home. This is not the same as borrowing back as you can with some flexible mortgages and it is not the same as moving to a larger mortgage as with a remortgage. A second mortgage is lent on top of the existing mortgage providing the borrower with extra funds.

A second mortgage allows a mortgage holder to release the equity available to them in their property. If the value of your home has increased since you bought it you are likely to have positive equity that can be released.

Why get a second mortgage?

The finance raised from a second mortgage is often used to purchase additional property as a holiday home, buy to let property or even to raise business finance. Second mortgages are also used to make home improvements. If the second mortgage is used as a deposit for additional property purchase the lender will probably require a larger deposit than usual and may charge a higher interest rate to compensate for the added risk. However this rate is likely to be less than any unsecured loan, which would be a much higher risk loan for a lender to offer.

A mortgage is one of the cheapest forms of loan available in the lending market. This is because it is secured against property, meaning the mortgage lender is under less risk of the mortgage not being repaid. Rather than getting a personal loan many people decide to take advantage of low mortgage interest rates and the equity in their homes. Although this means you are likely to be making mortgage repayments for longer it may be the cheapest way to raise finances for another investment that could help you pay off your current mortgage early.