2nd Mortgage Refinance

2nd Mortgage Refinance becomes and option as your circumstances change.

What is a Second Mortgage?
Firstly a home mortgage is any debt secured against your property. Your traditional mortgage is the first such debt registered on the title. If you were to default and the property was repossessed and sold then this lender has first access to any proceeds.

Obviously it stand to reason that a 2nd mortgage lender would have the second opportunity. Because there is always the risk that there won’t be a second chance, second mortgage rates tend to be higher than that of a first mortgage.

Why Use Second Mortgage?
There are many reasons for using a second charge mortgage.

Advantages
• First mortgage may have a high exit penalty for refinancing now. For example if you are within a fixed rate period or on a discounted offer.
• You may not have the equity to borrow further funds on a first charge. Few lenders will lend more than the value of the property although 2nd mortgage refinance lenders may consider this.
• Your credit history may change which rules you out of refinancing your normal mortgage
• Convenience – Sometimes the amount is too small to generate a traditional loan and often it is much quicker to setup a 2nd mortgage.
• Lower setup costs. Usually the establishment costs are lower

Downside
• Second Mortgage Rates are generally higher than first charge mortgages to reflect the additional risk from Loan to Value ( LTV calculator ) and/or credit history.
• Exit penalties can be significant although in recent times regulation by the FSA and other government agencies has reduced this.
• Often make insurance policies a condition of the loan. These are often quite expensive compared to what you would get on the open market.
• Limits the opportunity to refinance your home mortgage at later dates as there may not be the equity to facility debt consolidation. If there’s no equity, the first charge lender needs what’s called a deed of postponement and the second mortgage lender may not give this.

When to use 2nd mortgage refinance? Use the calculators available to you to compare the cost of a second charge particularly when tied to your current lender. As a short-term finance option it can e a worthwhile option but make sure you factor in any exit penalties and insurance, BEFORE you sign on the dotted line.

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