If you are looking to buy a second property, applying for a second mortgage can be a good idea. The process is relatively straightforward but you will need to demonstrate that you can meet payments for the second mortgage in addition to your other outgoing payments.
What Is a Second Mortgage?
A second mortgage is a separate mortgage that is taken out on a separate property, leaving the borrower to pay off two mortgages at the same time.
Like a standard mortgage, a second mortgage on a second property will also be a long-term loan in the borrower’s name and held against the property you are trying to buy.
Second mortgages can be used for second properties, a buy-to-let property or a holiday home.
Is It Possible To Have Two Mortgages?
For those looking to buy a second property, be it to rent out or use as a holiday home, they may consider getting a second mortgage. It is possible to have two mortgages at one time.
However, getting a second mortgage can sometimes be more difficult than getting your first mortgage. Banks or financial institutions will often have stricter affordability checks and they will need to assure that you are able to meet payments of both mortgages at the same time, in addition to any other monthly outgoings.
How Is the Process for Getting a Second Mortgage Different?
The process for applying for a second mortgage is more or less identical but there may be stricter affordability checks to make sure you can undergo the strain of paying off two mortgages at the same time.
Is a Remortgage the Same as a Second Mortgage?
A second mortgage is different from remortgaging. When you remortgage, you are either switching your current mortgage deal or switching mortgage lenders. This is usually to save money on the off chance that you find a better mortgage deal.
What Is the Difference Between a Second Mortgage and a Second Charge Mortgage?
A second charge mortgage is a long-term loan taken out to buy a second property but it is secured on the first property. Thus, the new property is secured on the original property. In the case of defaulted payment, second charge mortgages come second to the first charge mortgage.
Usually, in order to take out a second charge mortgage, the borrower will need to have a reasonable amount of equity in a property. This can include the percentage of your existing mortgage that you have already paid off plus any increases in the property’s market value.
Because the property is acting as security, the affordability checks tend to be less strict than for a second mortgage because the loan is less risky for the lender.
Second mortgages, on the other hand, are brand new mortgages secured by a brand new property.
Is It More Difficult To Get a Mortgage if You Already Have One?
Getting a second mortgage is a fairly straightforward process although lenders may be more thorough in their affordability checks. Usually, you will need to demonstrate sufficient equity in your existing home.
It is worth noting that there are usually additional fees incurred if you need to change the status of the mortgage on your existing property.
How Much Can I Borrow for a Second Mortgage?
Like your first mortgage, the amount that you are able to borrow for your second mortgage is likely to be based on your salary, credit history and the amount of equity you have.
You will only be able to borrow against the equity that you already have rather than the full value of the house that you are paying off in your first mortgage.
The better your financial profile, the more likely you are to receive a bigger second mortgage. Thus, a second mortgage may be a good option for those who have already repaid a big chunk of their first mortgage or if the value of your first property has increased substantially due to home improvements or if the area has gone up in value.
Should I Take Out a Second Mortgage?
There are definite advantages to taking out a second mortgage for those looking to buy a second property. By keeping your new mortgage separate from your existing mortgage, you are ensuring that your current home is not at any direct risk. Additionally, if you can afford the repayments, second mortgages can be a cheaper option than a second charge mortgage or a secured loan.
However, taking out a second mortgage can be expensive. Not only will you be paying off two mortgages at once, you will need to have money to pay a second deposit. Additionally, it may be more difficult to get a second mortgage due to the stricter affordability checks.
Things To Consider Before Applying for a Second Mortgage
If you are intending to apply for a second mortgage, there are certain factors you should take into account.
- Reduce your spending – before applying for a second mortgage, cutting back on your spending (including subscriptions and extra bills) can be a good way of improving your financial profile.
- Affordability – make sure that your income can cover the cost of paying for two mortgages over a long period of time in addition to any other financial obligations.
- Paying off your first mortgage – if you are able to, try to pay off as much of your first mortgage as possible before applying for a second mortgage.
- Evidence – prepare proof to show that your income is able to cover two concurrent mortgages.
- Shop around – compare different mortgages to make sure you are getting the best deal available for your circumstances.
