Second Mortgages Or A Further Advance

Second Mortgages or​ a​ Further Advance
If you​ are a​ homeowner and in​ need of​ some extra cash,​ one possibility you​ could consider is​ taking out a​ second mortgage .​
If the​ present value of​ your house exceeds the​ amount you​ paid for it​ (your mortgage total),​ then you​ have equity that can be used to​ borrow more money .​
This is​ basically a​ loan that is​ secured on​ your house – and is​ sometimes termed a​ further advance.
Finding Another Lender?
You can approach your existing lender for a​ second mortgage,​ or​ shop around for a​ lower interest rate .​
It’s likely your second mortgage will be for a​ lesser amount of​ capital,​ but will nevertheless be subject to​ higher interest rates and possible charges .​
This is​ because it​ represents more of​ a​ risk to​ the​ lender – the​ lender takes a​ ‘second charge’ over your property,​ which means that if​ the​ debt was recalled and your house repossessed,​ they would be second in​ line after your main lender to​ receive their debt.
For What Purpose?
Secured loans and second mortgages are popular with people who want to​ raise extra funds – for example if​ you​ want to​ carry out home improvements or​ set up in​ business and need capital to​ get going .​
Although it​ can be a​ good way to​ find a​ cash lump sum fast,​ be aware that you​ are eating into the​ investment that your property should be .​
You should make sure that you​ have planned for the​ extra cost of​ repayments beyond what you​ initially were bound to​ .​
If the​ mortgage term will last into your retirement,​ will you​ be in​ a​ position to​ keep up the​ repayments?
Understanding the​ Small Print
While there are any number of​ lenders offering second mortgages,​ before you​ commit yourself to​ one you​ should be totally clear about the​ terms offered .​
Although there may be a​ special offer or​ discounted period of​ low interest,​ often these will revert to​ a​ higher rate after the​ set period – once again,​ you​ need to​ take the​ long term view rather than the​ short term .​
Also,​ your equity can provide a​ security cushion so that if​ market prices fall,​ you​ will avoid the​ negative equity ‘gap’ – taking out a​ second mortgage means you​ will lose that safety feature .​
(This is​ where the​ phrase ‘mortgaged up to​ the​ eyeballs’ is​ particularly apposite.)
You should also take into account any other costs that you​ may incur – arrangement fees,​ a​ re-valuation survey,​ additional payment protection etc.

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