What you need to know before committing to a secured loan
The loan is secured by the lending company on a ‘second charge’ basis, which is a different regime compared to the main mortgage which holds the property at ‘first charge’. The latter is a legal regime in which the property that guarantees the loan is registered in the Property Registry.
A home loan obtained through this process can be used for anything the loan wishes to be safe from illegal activities or purchases. However, second charge mortgages are generally limited to financing home improvements or financing large purchases, such as car purchases. Alternatively, second charge loans can be used to consolidate existing loans and help reduce a distressed borrower’s debt obligation.
With this arrangement, the borrower is expected to make regular monthly payments over the life of the loan, which can last up to 25 years. The process of selling and servicing first charge secured loans is regulated by the Financial Conduct Authority (FCA) for a considerable period of time.
Today second charge loans are now exclusively regulated by the FCA and are expected to conform to the same regulations, rules and procedures as ordinary mortgages. What this means is that borrowers are expected to show that they can afford both the first- and second-charge mortgages.
Who is eligible for a guaranteed second charge mortgage?
Do you have existing secured loans or home loans that are currently foreclosure? Do you want to borrow a larger loan amount than what standard personal loans can provide? If your answers to the questions above are yes, then you are the right candidate for a second home mortgage. These loans can go up to £250,000 and are suitable for borrowers who have built up enough equity in their homes to provide the necessary security for the loan.
What to look for before taking out a second charge mortgage
There are many things to know before taking out a second home mortgage. Here are some of the things to keep in mind:
For the second charge, it means that any default may mean the lender takes you to court and institutes recovery proceedings. When this happens, the first lender gets the money back from him while the second lender gets the rest of the sale of the foreclosed home.
Second charge loans come with variable interest rates, which means borrowers need to exercise a lot of restraint as rates are likely to go up and down. If you’ve taken out a loan that comes with a variable rate, you’ll likely suffer more if rates rise, so it’s important to assess your ability to repay before committing to this type of loan.
Most homeowners often view debt as the last option, but financial experts say it may turn out to be the only way a borrower can get out of financial trouble in the short term. When you restructure your loan to increase the payment period, you certainly reduce the monthly payments but increase the total payment over the long term.
Compare these loans before you borrow
After evaluating your need for money (loan), you should shop around for the best loan store to understand affordability and terms. You must schedule an interview with several select lending agencies before registering. Remember that unsecured loans do not have interest rates similar to the types of secured loans. Unsecured loans are capped at up to £25,000, but this amount can vary from lender to lender and borrower to borrower depending on circumstances.
make your decision
With a wide variety of loans available, it can be difficult to decide which loan is right for you. However, you must evaluate your own situation based on your income, needs, expenses, and credit scores. You may also need to consider whether you have enough equity in your home and whether you need a long-term or short-term loan. Perhaps the most crucial question to ask yourself is why you need the loan in the first place.
