Second Charges

By Author: AndrewAidan
Total Articles: 2
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There are kinds of loans which come with different methods to repay. Second charges is one of them. Second charge is also known as second mortgage or second charge mortgage. This allows a customer who already has a mortgage on his property to get a loan by mortgaging it the second time. It allows the owner of the house or property to use the remaining monetary value to procure another loan.
The Way it Works
It considers the net ownership to serve as a security for the loan. The customer will be eligible for an amount that is less than what was borrowed in the first mortgage. Second charges can be repaid only after the repayment is done for the already existing first mortgage. The interest rate is much higher for this mortgage.
How does it help?
It serves a good alternative for remortgaging. This means the customer can avoid paying more interest that is usually charged when a remortgage is taken. It also helps when personal or unsecured loans are unavailable to customers if their credit rating does not permit them to avail one. It serves as the right solution for settling outstanding loans and helps consolidation ...
... of debt. It helps finance home improvements and repairs. It also helps pay the monthly insurance due to the first mortgage.
Drawbacks of Second Charges
This option though helpful in many ways, has to be dealt wisely. Second charges involve a big risk factor. Defaulters of this may have their properties foreclosed. It also becomes unmanageable if the payments for the first mortgage are not done and this loan also adds up. Clearing small loans especially like the ones because of credit cards with this loan can make it very difficult in the long term. Apart from all these there is a very high fee that is charged by lenders. Also, it is not possible to pay this back until the repayment for the first taken mortgage is done.
Types of Second Charges
There are two types of second charge mortgages. They are:
• Fixed rate and
• Adjustable rate
In the fixed rate model, that interest rate is standard throughout the repayment period. Whereas, in the adjustable rate model the rate is fixed for a certain period of time and after completion of that period it becomes adjustable. However, there is a stipulated period of time during which an adjustable rate second mortgage can be repaid. After that period, the entire outstanding dues must be paid completely or the customer has to opt for refinancing. The repayment period can be as short as one year or as long as twenty years.
The first mortgage always has precedence over the second. That implies the lender of the first mortgage has the first right to be repaid if the property is foreclosed. The second charge mortgage lender is entitled to get the same after that. The same procedures are also followed for second mortgages which include paperwork, loan processing, appraisal and costs associated with loan closure.
This is how a second charge mortgage works and does have both positive and negative implications on the borrower’s financial aspects.