Should your client remortgage, or take a second charge.
If you have a client who's looking to remortgage because they need to borrow extra – perhaps to pay for renovations, or to consolidate debts – they may not realise that they have other options available. Without having to resort to unsecured borrowing like a personal loan.
Second-charge loans are not widely available through mainstream lenders, and your client may not have ever heard of them. But they may find them appealing, if they knew more about them.
Of course, they won't every time – so we've outlined below what choosing a second-charge loan, rather than remortgaging, would mean for your clients on a practical level.
They can keep their existing mortgage rate
By remortaging, your client would be giving up any favourable rate they already have.
This may be a risk worth taking. But if their personal circumstances have changed since they took out their mortgage – perhaps they've had missed payments affect their credit rating – this may mean they end up with a higher rate on all of their borrowing, rather than just the extra.
They won't have to pay an Early Repayment Charge
If your client's existing mortgage attracts Early Repayment Charges that are payable on remortgaging (whether to a new lender or just to a new deal), these can obviously be avoided by opting for a second-charge loan instead.
They'll have two monthly payments to make
As second-charge mortgages run alongside any existing mortgage, your client will need to repay both simultaneously. This will likely mean their total combined monthly payments are greater, and this will be taken into account when conducting affordability calculations.
They may repay less overall
Second-charge loans have their own rate and terms. And unlike some lenders, we do micro-second charges of as little as £10,000, over as little as three years.
If your client decides for a much shorter term on their second-charge mortgage, there's a good chance they'll pay less in interest overall, than had they repaid the extra borrowing over the full remaining term of their mortgage.
A practical example
Sam and Del have £100,000 left to pay on their 22-year mortgage, and want to borrow an extra £10,000 to pay for their dream kitchen. If they chose a shorter term for their second-charge mortgage – say, six years – they may repay less in total than if they were to remortgage all £110,000 over 22 years.
You can obviously help them compare the two options side-by-side using overall costs for co, and advise them on what you believe is the best way to proceed.
Second-charge loans are available on private residential property (in which case they are regulated), as well as commercial properties – meaning businesses needing a cash injection can leverage the equity in their premises to borrow again.
Unlike some lenders, here at Together we also offer second-charge loans on buy-to-let properties. This means landlords can access borrowing if they – for instance – need to pay for renovations or repairs, or if they want to raise a deposit to grow their portfolio by purchasing a further property.
Lending decisions are subject to an affordability/creditworthiness assessment.
Any property used as security, including your home, may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.