How to get a second mortgage
A subsequent mortgage, is a separate mortgage taken out on an additional or second property, leaving you with two concurrent mortgages to pay off.
Second mortgages are for individuals who are looking to purchase a second property as a purchase to-give, a holiday a chance to home to lease, or are reaching the finish of making their repayments on the first and can afford to have two large debts to pay off.
In any case, it is just the same as another mortgage, just with stricter affordability checks, because it could add significant financial strain to pay for a subsequent mortgage.
A few people looking to purchase a subsequent home may be thinking of taking out a subsequent charge mortgage, which is now and again alluded to a subsequent mortgage, yet these are separate kinds of loan.
A subsequent charge mortgage is like a secured loan, which you take out against your property, and utilize the equity to help raise enough money to utilize like a subsequent mortgage to purchase a new home.
The affordability checks on a subsequent charge mortgage or secured loan are not as severe because your current home is utilized as security, whereas with a second mortgage you are basically taking out a brand new mortgage.
What is a second mortgage?
A second mortgage on a subsequent property is another long-term loan in your name held against the property you are attempting to purchase as a subsequent property, a purchase to-let or a holiday home. Essentially it is another mortgage that is separate to your current one.
A subsequent mortgage isn’t the same as a secured loan, remortgage or second charge mortgage, which confusingly may also be alluded to as a ‘second mortgage’.
For example, you may utilize a secured loan or second charge mortgage on your current home’s equity (the part of the home’s value you inside and out claim, for example what percentage you have paid off on the mortgage, plus any increases in the property’s value on the market) to use as security for a new large, long-term loan.
Banks are generally bound to loan to you in the event that they have some kind of security as insurance in the occasion you fail to repay your debt.
Property is usually considered to the be main sort of security, meaning that in the event that you can’t keep up with repayments on your subsequent charge mortgage or secured loan, the bank can hold onto your current property.
With a remortgage, you are exchanging your mortgage suppliers – essentially, asking your new mortgage supplier to pay off your current mortgage. This means you pay your debt to your new mortgage supplier instead, and these deals are usually done on the basis of accepting an increasingly favorable rate on your mortgage.
In any case, with a subsequent mortgage, it is separate from where you currently live or any other sort of mortgage you have. This means that on the off chance that you fail to repay the debt, the bank can just hold onto the property you are utilizing their mortgage to purchase. Your current mortgage would not be affected.
Accordingly, nonetheless, this makes getting a second mortgage incredibly troublesome. Banks will have far stricter affordability checks and will know that you are currently paying off a mortgage (the first).
Should you get a second mortgage?
Individuals who want a subsequent mortgage are generally looking to purchase a subsequent home. This would mean they are not yet ready to sell or move out of their current home, yet might want a second home they can eventually move into or use as a holiday retreat.
At times, they may want to lease their first or second home – read the segment, ‘Purchase to let or consumer purchase to let’, further down to learn increasingly about this.
Advantages of taking out a second mortgage:
- Separate from your existing mortgage, so your current home is not at direct risk
- If you can afford it, a second mortgage is likely to be a cheaper loan than a secured loan or second charge mortgage
Disadvantages of a second mortgage:
- Requires a second deposit
- Is expensive to pay for two mortgages at the same time
- Stricter affordability checks
- Puts your current home at indirect risk (e.g. you may have to sell in order to afford repayments on the second mortgage)
Puts your current home at indirect risk (for example you may have to sell so as to afford repayments on the subsequent mortgage)
A subsequent mortgage, in spite of not being linked to your current home or existing mortgage, still represents an indirect risk to it. In the event that you are unable to repay your subsequent mortgage, at that point you may look to your current property as a financial back up plan by selling it off.
Notwithstanding, this last hotel isn’t as bad as it sounds because your subsequent mortgage means you are the proprietor of a new property, which you could move into if you had to sell your current home.
You would in any case need to raise a subsequent store and generally you will have more expenses on a monthly basis. This will be factored into the affordability checks the bank will carry out to determine on the off chance that you ought to be allowed to take out a subsequent mortgage.
Since the Mortgage Market Review (MMR) was presented in 2014, banks have carried out stricter checks on new mortgage applications. This means lenders have to check if your finances can handle the pressure of a long-term loan.
And on the off chance that you are taking out a subsequent mortgage, they will factor this in, alongside your different bills, be it credit cards, TV subscriptions or even a rec center membership alongside your regular spending habits.
On the off chance that your current lifestyle allows you to live inside your means and you just have a small part of your pay left over each month, at that point you are unlikely to have the option to afford a subsequent mortgage.
Regardless of whether you plan to reduce a couple of things, banks will make the assessment based on how you currently live and throughout the last barely any months.