A Secured Loan is also known as a Second Charge Mortgage, is a secured loan that is effectively an additional mortgage alongside the one you already have, though with interest rates that are higher than the average amount. Secured Loans are familiar with people looking to borrow more than their current lender is willing to lend.
The reason that these interest rates tend to be higher is that in the event of arrears and an eventual repossession, the provider of the Secured Loan, the second lender that you borrowed from, must wait for the original provider, the first lender that you borrowed from, to sell the property before getting their money back.
The second lender knows that there is a much higher risk of things going wrong and not making money back, so they opt to charge higher interest rates. Whilst this is often known as an expensive “last resort”, they can usually accommodate specific situations.
When taking out a Second Charge Mortgage, your first mortgage stays the same. The new amount gets borrowed from a different lender and a separate direct debit.
When it comes to paying these amounts back, the first lender will always prioritise, and the second lender will usually get whatever is left. If the property sells for enough and has enough equity to cover both the first and second charges, you get to keep some of it with some leftover.
The length of this new amount varies, as you could take it out over a shorter or longer-term than your primary mortgage. If you’re only in need of a small amount, you may benefit from looking at unsecured borrowing instead of a second charge.
Date Last Edited: December 6, 2023