Second mortgages are an increasingly popular way for homeowners to raise finance by using the equity in their property. Second mortgages are also known as “home equity loans” and “secured loans.”

Essentially, second mortgages are loans secured against properties on which there are already first mortgages from different lenders. As an alternative to second mortgages, applicants could receive a further advance on their first mortgages instead.

Second mortgages are used extensively throughout the UK by homeowners who wish to release equity from their homes in order to fund activities such as home improvements, debt consolidation, purchasing a new car, or funding a holiday.

Lenders are willing to approve second mortgages for almost any purpose so long as the combined loan-to-value ratio of the first and second mortgages does not exceed their allowable upper limit.

Basically, home owners who have equity in their properties can secure second mortgages against them in addition to the first mortgages. The funds from the second mortgages will be deposited into the borrowers’ bank accounts which can then be used for any purpose.

It is important to note that second mortgages are usually secured against the borrowers’ homes. Taking out second mortgages could therefore lead to home repossession if the borrowers do not keep up with their repayments.

Secured loans normally have a shorter term than first mortgages and also attract higher interest rates due to the perceived increased risk by lenders. Therefore the monthly repayments on second mortgages can seem excessive when compared to first mortgages.

If the repayments on second mortgages seem too high, borrowers should instead consider releasing equity be increasing the balance of their first mortgages. Because the interest rate will probably be lower, and the term of the first mortgage longer, the increase in the monthly repayment should be less than for the monthly repayments on second mortgages of the same amount.

If applicants would prefer to not put their homes at risk they may wish to consider applying for unsecured loans instead. Unsecured loans, or personal loans, are not secured against the equity in the borrowers’ homes and therefore do not put their properties at risk.

It should be noted that unsecured loans usually come with higher interest rates than second mortgages.

If borrowers are in any doubt with whether or not to use second mortgages to raise funds, they should consult with an independent mortgage adviser.

Visit UK Mortgage Source for up-to-date information on Second Mortgages

Source: www.isnare.com