It may be cheaper to take a second charge than redeem your mortgage
Resident expert Mr Payam Azadi explains how excellent secured loan rates can help you.
The last few years have been testing however I personally applaud the stance on interest rates presided over by the Government and now previous Governor of The Bank of England, Sir Mervyn King. The Bank of England Base Rate was reduced to 0.5% back in March 2009 and has now dropped to an all time low at 0.25%. Of course it’s impossible to know how much extra devastation to lives would have been caused if the rates had been higher but my mortgage customers that are on lifetime trackers are very thankful.
So what’s all this got to do with the benefits of a secured loan? Well if you took out a Tracker before 2009 the chances are the lender’s additional margin is no more than 2%, so your main mortgage will be no more than 2.25%. There are customers whose margin was much lower and it extreme cases less the Bank of England Base Rate (BBR) so why would you want to surrender it? Leave it alone and smile at this once in a lifetime opportunity.
You might think here ends the sermon but life goes on and raising finance is part and parcel of life. And, the beauty of a second charge loan, otherwise known as a secure loan, is that it sits on top your main mortgage. That’s right if your first charge is a £250,000 with Halifax on a tracker rate of 1.25% it can stay there and the additional amount say £30,000 for the much needed extension can be raised using a second charge loan.
Second charge loan rates are generally higher than mortgages but invariably the main first charge has a greater level of borrowing as such the blend can work out cheaper than to remortgage the entire balance away from that great first charge rate talked about above.
How A Secured Loan Could Save You Money
Scenario
Client wants to raise £25,000 for a new car
Existing first charge mortgage £275,000 with Skipton BS on a rate of 0.75% (BBR+1%) with 17 years to run. Monthly repayment is £1,466 pcm.
Property value £400,000.
Option 1:
Remortgage for £300,000 (existing first charge plus the money for the car)
Cheapest new mortgage rate available without set up costs is currently 1.72% for 2 years, reverting to 4.24% variable (currently).
New initial monthly mortgage payment £1,697 for 2 years, reverts to £2,023 for 17 years.
Further comment: you have also lost the great tracker you are on for a variable rate which the lender can independently set.
Option 2:
Keep the existing first charge mortgage on the Skipton rate.
Cheapest second charge new mortgage rate available without set up costs is currently 4.00% for 1 year, reverting to 5.50% variable (currently). APRC 6.2%.
£175.15 followed by £194.58.
Overall cost £1,466 pcm plus £175.15 = £1,641.15
Additional Benefits of A Secured Loan
- A second charge secured loan can also run on an independent term so you could borrow the additional money over a shorter period than the first charge and therefore repay it earlier to save interest.
- If you have had credit problems you may not be eligible for a remortgage or the rate might be prohibitive whereas a second charge lender may be able to help.
- Second charge secured loans can be arranged up to 95% of the property value.
- Second charge lenders may consider recently self employed applicants.
- Second charge lenders may consider capital raising on properties purchased under the Right to Buy legislation.
- You do not need legal representation on a second charge which can save money and time.
- Unlike personal loans the second charge secured loan lender can repossess your property in the event of default. This extra security may mean the lender can offer more favourable interest rates.
For more information about Secured loans , please contact us on 0207 993 2044 or alternatively complete the simple enquiry form on the top right hand side of this page.
Typical APRC 5.4% variable
NICHE ADVICE LIMITED IS REGULATED BY THE BY THE FINANCIAL CONDUCT AUTHORITY.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. ALL LOANS ARE SECURED ON PROPERTY AND ARE SUBJECT TO STATUS.
IF YOU ARE THINKING OF CONSOLIDATING EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.
IF YOU CHOOSE A VARIABLE RATE LOAN THE COST OF YOUR PAYMENTS MAY INCREASE.
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Mortgage Brokers. His role is very much focused on Property financing both on residential and commercial lines.
