A second mortgage is a loan secured by a property that already has a mortgage. The second mortgage is a subordinate mortgage meaning that in the event of default the first mortgage will take precedence over the second. This means that, for the lender, the second mortgage is riskier than the first. This is reflected in the higher rate of interest that the second mortgage will attract.
Despite the higher interest, a second mortgage is an excellent way to acquire a large sum loan. It allows you to tap into the equity in your home. You can borrow up to 90% of your home equity.
Your home equity is the difference between the market value of your home, and what you owe on it. Equity is built up as the market value of property rises and as you repay your mortgage. A portion of your monthly repayments goes to repaying the principal.
Secured loans are less expensive than unsecured loans. They are useful in
consolidating more expensive personal loans or credit card debt
Paying renovation costs
Covering your child’s education
If you are thinking of applying for a second mortgage get an estate agent to give you an estimate of the value of your property. Then use this to calculate the loan to value ratio. The LTV is calculated by dividing the outstanding mortgage by the value of the property. The lower that value the better your chances of getting a second mortgage. Second mortgages are usually private mortgages so you’ll benefit from contacting your mortgage broker.