Getting a second mortgage or second charge can be good for people who are property investors and want to release more capital to purchase another property. However, a second charge is not a good option if you are already struggling with debt and/or mortgage repayments.
Mortgage Modification Programmes
Mortgage modification programs were put in place months after the housing market began to crash. These offers come with strict rules that are difficult to fullfill. And if you can’t keep up with the modified payments, you risk losing your home all together.
How about making that lower monthly payment? It’s a tempting option for anyone struggling to keep up on their mortgage payments; unfortunately it could mean throwing good money after bad. Taking another loan out on your property or getting a second mortgage is rarely – if ever – an option that works for the homeowner.
This is especially true in today’s market, where a second mortgage or home equity loan can be an even riskier proposition than it was during the housing boom. “A lot of people with first mortgages and high-rate second mortgages are offering to let people (through their first) properties as low as 1 percent down,” said real estate attorney Bill Torgerson. “But they’re slapping on a second mortgage that’s charging 12 percent interest.”
“Those kinds of deals are very risky,” he added. “It doesn’t matter what the market does, you can’t get out from underneath it because (the lender) has a security interest in your house and equity.”
Torgerson said the second mortgage or home equity loan could actually cost you more than a housing market crash would. “When your value’s down, you’re probably looking at paying five to six percent on that second mortgage,” he explained. “That means if your house is worth $200,000 now and it goes down to $150,000, you’re probably going to have to pay off that second mortgage. You could end up paying more for a bad investment.”
The risks don’t stop there. With two mortgages out on your house, you’ll be at risk for repossession with even the slightest housing market fluctuation or life change. “If somebody loses their job and has both mortgages, if their payments are late, that’s when the sheriff comes and evicts you,” said Torgerson. “If the borrower has both a first mortgage and a second mortgage, they’re going to be more vulnerable.”
Second Charges for First Time Buyers
First-time homebuyers have been especially hard hit by today’s plummeting housing market. Lenders who are willing to do deals for second mortgages or home equity loans are often even tougher on first-time buyers. “They’re the ones who have more of a problem getting an initial mortgage,” said Patricia Acosta, owner of Dallas real estate agency American Dream Home Relocation Services. “Their credit is not as established, so they may have trouble qualifying for that initial loan.”
Acosta said lenders are also requiring the first-time homebuyer have a stronger credit history before they’ll consider doing a second mortgage. “Banks want to see two years’ of tax returns, bank statements and two years’ worth of pay stubs,” she explained.
If you’re looking for help with your mortgage, talk to your lender first and be wary of the exotic financing options that come with a second mortgage or home equity loan.
A Second Charge is Unlikely to Solve your Debt Problems
If you’re facing repossession and looking for a way to stay in your home, don’t put more debt on it. It’s better to sell before you go into arrears so you can avoid paying deficiency judgments; however, a short sale may not be an option if you’re underwater on your mortgage.
Second Charge Mortgage for Property Investors
If you are a property investor looking to release capital from one property to put into another, and have equity and capital elsewhere then a second charge is an option. However, it is often the case that extending your current mortgage is both easier and cheaper, so always look at this option before you go for a second charge.
The Forced Second Charge ordered by a Court
Some people who cannot repay their CCJ’s (County Court Judgements) end up with an unwanted second charge on their property. This is because their Judgement went unpaid and their creditor applied to the court for a second charge on your property which is secured against the debt. In this situation the debt that you owe will be repaid from the profits or capital when the property is sold. This would automatically come out of these funds via your solicitor. No one wants a second charge that was uncalled for!
Where can you get a Second Charge Mortgage?
There are many lenders that specialise in second charge mortgages if you would like to release equity for personal reasons or to build your property portfolio. For example, Precise Mortgages, Paragon and Shawbrook bank are popular specialists in this area of lending. However, the best option for getting a second mortgage will probably be to approach a broker who can shop around to get you the best deal.
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