A second charge mortgage can be a great way to get a fast cash injection, but it’s a decision that should not be taken lightly. Second charge mortgages can be costly, so you’ll always need to ensure you can afford to keep up the repayments – failure to do so will place your home at risk.
The ABC Finance second charge mortgage calculator will help you understand your monthly repayments and how much interest you’ll pay.
Using our second charge mortgage calculator
Everybody's unique circumstances are different, so there is no one-size-fits-all approach to second charge mortgage rates. By entering your details into our calculator, however, we can offer some insights into what you may expect to pay.
We'll ask you how much you are looking to borrow on your second charge mortgage and over how long. We will also need to know how much remains on your existing mortgage and your property's most recent valuation figure.
Based on the information you provide, the calculator will give you an idea of what you will likely need to repay each month. By understanding your costs, you will gain an understanding as to whether a second charge mortgage is a realistic idea.
How are homeowner loan repayments calculated?
The repayment will depend upon three primary factors:
- How much you borrow
- The length of the second charge mortgage term
- What interest rate the lender offers you
Longer terms typically mean lower monthly repayments and may even lead to a lower interest rate. However, as you will be paying interest for a more extended period, the loan will cost you more over the full term.
For example, let's assume you are looking to borrow £40,000 at an interest rate of 6.6%. This would lead to monthly repayments and a total repayment cost as follows.
|Repayment Term||Monthly Repayment||Total Repayable||Cost of Loan|
Most lenders will allow a term of up to 25 years, though if you are older than 46, and thus likely to retire before the conclusion of a 25-year period, you may only be offered a shorter repayment schedule.
Be aware that these numbers are only related to the loan and interest. Most second charge mortgage applications will also accrue additional fees, most notably administrative costs incurred by the lender.
These will be comparatively minor and attached to the total sum repayable, but may slightly increase the amount you pay each month.
How to calculate your maximum loan
On paper, the upper limit for a second charge mortgage loan is sky-high – most lenders will be willing to lend up to £2,000,000, if their borrowing criteria are met. In reality, your maximum loan depends on how much equity you have in your home and your income.
Contact your mortgage lender to find out your outstanding mortgage balance, and enlist the services of an estate agent to get a valuation on your property. Choose somebody impartial that will offer a realistic and accurate valuation, not a friend or family member that will artificially inflate the numbers.
The second charge mortgage lender will almost certainly arrange their own valuation, so you need these figures to match.
Most second charge mortgage providers cap borrowing at 90% loan to value.
What are the next steps after using the calculator?
After crunching the numbers on our calculator, you'll have an idea if a second charge mortgage is an option for you. Remember, though, the repayments suggested are can vary depending on the products available.
If you want to proceed with a second charge mortgage, contact your existing mortgage lender and ask their permission.
As you will be securing a second charge mortgage against a property in which the existing mortgage lender owns a stake, they have the right to refuse. If your mortgage lender has any reason to believe that you will not be able to keep up repayments, they will block your application as they consider it an unacceptable risk against their asset.
Once you have this permission in writing, you are free to apply for a second charge mortgage. You can search lenders yourself, seeking out an offer online, or you can enlist the services of a second charge mortgage broker. While the latter will come at a small cost, your outlay will likely pay for itself multiple times over.
Keep reading - Buy to let second charge mortgages.