A mortgage is no more than a secured loan against an asset by way of a lien. A second charge works in exactly the same way.
In other words, a lender loans money to a borrower so that he / she may buy a property. The loan is conditional upon a variety of terms, one of which is the defined collateral for the debt. In this instance, collateral is another name for ‘security’ and this is secured by way of a lien.
The registration of a loan against a property’s title is referred to as a ‘charge’.
Most properties have only one debt registered against them (because most people take out only one loan when purchasing a property) although sometimes a borrower might extend or add to his or her mortgage during its term in order to raise money, perhaps for a home extension - or a child’s wedding.
From time to time, a home owner might be unable to raise money through their primary mortgage lender due to their circumstances or the criteria set by the lender. In these cases the homeowner may wish to borrow money but he cannot borrow it from his existing lender. In these circumstances, it is possible to raise more money by way of a secured loan, with a different lender. It is normal for the new lender to take a second charge against the borrower’s property.
A second charge is a secured loan but it will have less precedence than a first charge. If the borrower defaults on either the first or second charge, either lender can instigate repossession proceedings. However, the first charge lender gets their money first, and there may not be enough money left to repay the second charge lender. In this case, the lender will have to look at other ways to reclaim their outstanding debt.
When taking a second charge mortgage lenders will always consider the affordability of the new repayments and whether the loan will over extend their borrowings. However, in some cases borrowing by way of a secured loan is a far better way of raising money as terms are normally much cheaper and over longer periods than a shorter, unsecured loan agreement.
Here at Mortgage Required, we specialise in secured loans so please get in touch on 01628 507477 if you need more information.
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