An Introduction To Second Charge Loans

An Introduction To Second Charge Loans



An Introduction to​ Second Charge Loans
Mortgage advisors in​ the​ United Kingdom have plenty of​ reasons to​ consider secured loans (referred to​ as​ second charge loans) and,​ according to​ the​ UK Mortgage Conduct of​ Business (MCOB) rules they must do so .​
This statutory regulation has just passed its first anniversary and what effect it​ has had on​ both regulated on​ unregulated products and services may give us pause .​
One of​ the​ myths about secured loans is​ that this second charge market in​ the​ UK is​ not subject to​ regulation .​
While it​ is​ true that it​ is​ not subject to​ the​ control of​ the​ countrys Financial Services Authority in​ the​ way that the​ first charge (unsecured) market there is,​ second charge loans up to​ 30,​000 US are regulated by the​ UKs Consumer Credit Act.
The federal government also has a​ clear system in​ place to​ deal fairly with its countrys citizen customers .​
Not only that -14 of​ the​ primary second charge loan lenders have formed a​ self regulatory market voluntary .​
It is​ called the​ Finance Industry Standards Association (FISA) and it​ has stepped in​ to​ regulate over 200 finance brokers in​ the​ UK .​
The important change for both the​ first change and second charge loans market is​ not the​ law on​ its own but the​ push it​ has given the​ financial brokers to​ carefully consider all lending options before they offer lending advice to​ their clients .​
However,​ the​ important change has not been regulation itself but the​ impetus it​ has given to​ brokers to​ look carefully at​ all the​ options available before offering advice .​
MCOB has helped advance financial lending research .​
Before the​ legal regulations on​ the​ industry brokers were not encouraged to​ consider second charge loans when their clients came to​ them for help finding borrowed funds and their providers .​

This doesnt mean that refinancing of​ mortgages are not the​ first step for homeowners who have equity and need capital but the​ second charge regulations on​ loans require brokers to​ become more familiar with each particular clients specific needs and circumstances prior to​ making recommendations .​
Before the​ second charge loans legislation UK finance brokers recommended refinancing as​ a​ matter of​ course .​
Now they most consider every financing option before reaching that conclusion .​

This situation with regard to​ first and second charge loans is​ further complicated if​ the​ mortgage the​ borrower already has in​ place has a​ pre payment (also known as​ early redemption ) penalty attached to​ it .​
If the​ clients credit history has changed for the​ worse since the​ mortgage was originally signed or​ if​ the​ borrowers financial status has worsened the​ situation must be studied more closely as​ well.
While they might still get refinanced that could be ill advised under these circumstances .​
Refinancing second charge home loans is​ generally for the​ purpose of​ saving money .​
For a​ broker to​ recommend refinancing to​ someone whose income has dropped,​ or​ whose credit history has worsened would be to​ invite a​ higher interest rate and less pleasant terms the​ second time around .​
The other issue that can make the​ determination for second charge or​ first charge loans is​ speed .​
Some loans can be completed in​ as​ few as​ 10 days,​ while others take many weeks .​
It may be,​ depending on​ the​ circumstances,​ that a​ client would be ill advised to​ wait for a​ better rate on​ a​ second charge loan .​
It may be just the​ opposite .​
The broker must determine that for her or​ his client.




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