2nd mortgage

The term 2nd Mortgage can be used to refer to "buy to let mortgages" or a remortgage / further advance.

Buy to Let Mortgages

This is a mortgage used to buy another property other than the one you live in. This purchase is usually made as an investment with the intention of renting it out until the property has increased in value by a substantial amount and then selling it at a profit. Many buy to let mortgages are used as long term investments for a retirement fund.

Read more about buy to let mortgages.

Remortgages and Further Advances

A 2nd Mortgage can also be used to refer to another mortgage on top the one you currently have. This type of mortgage can also be called a remortgage or a further advance.

A remortgage is where you have an existing mortgage with a lender but want to take a further loan against your home. Most peoples first point of call is to approach their existing mortgage provider. However, your current mortgage lender may be unable to make you a mortgage offer due to missed or late mortgage or credit payments, a change in your circumstances (such as a reduction in income) or because there is not enough equity in your property.
If this occurs then you may wish to approach other lenders for a 2nd mortgage or remortgage as they may be willing to offer you a loan even in the above circumstances. The re mortgage provider takes what is called a second charge behind your mortgage lender. A second charge means that if the worst was to happen the monies from the sale of your house would be split with your first mortgage lender being paid first, and then your second mortgage lender would be paid from the remainder of the money. Whatever is left after the loan amounts have been deducted would normally be passed back to you or your estate.

A remortgage of this nature is likely to be offered at a higher interest rate as it would be considered a higher risk.

When taking an additional loan with your existing mortgage company then this is often called a further advance and it is exactly that, a further advance of money on top of your original mortgage. This does not mean that you will get the same rate as your existing mortgage. Your circumstances, past conduct and credit will be assessed resulting in you being made a further advance offer based on the rates available that day.

If you decide to go ahead with a further advance you may still have to provide proof of income etc, but it should be a quicker process than when you took your first mortgage out.

Your mortgage will usually be the lowest rate loan you can get. As with all borrowing, be aware that borrowing taken over a long period of time will cost you more than borrowing over a shorter period of time.

A mortgage calculator is a useful tool to help you assess the cost of a 2nd mortgage.

If you have any questions or suggestions, please post a comment below.

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Updated on 6th March, 2009

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