Second charge mortgage interest rates greatly impact the cost of borrowing money. In this guide, we break down the latest second charge mortgage rates, the other set-up fees and how you can save money on a 2nd charge loan.
What are the latest second charge mortgage rates?
Second charge mortgage rates are slightly higher than mortgage rates, and currently sit at around 7% per annum. As prime interest rates rise or fall, expect second charge mortgage rates to follow the same pattern.
What factors affect the rates charged on a second mortgage?
The interest rate you will be offered on a second charge mortgage varies according to the following factors.
- The Bank of England Base Rate. The higher this is, the higher all mortgage interest rates become – whether a first or second charge.
- Your financial history. The higher your credit score, the more likely you will attract a low interest rate. You may still secure a second charge mortgage with a poor credit history, but the interest rate will be higher as you are considered a higher-risk borrower.
- How much you are looking to borrow, and the loan-to-value required.
- The length of the loan that you are requesting. If you take out a second charge mortgage over 25 years, you may get a better interest rate than you would over 10 years – but as you’re accruing interest for longer, you’ll pay much more overall. This factor will depend on how the loan term impacts your ability to pass a lender’s affordability assessment.
Different lenders will also have their own products, each with their own specific interest rates. An experienced second charge mortgage broker will be able to find you the perfect lender for your circumstances and ensure you do not pay any more than you need to.
How can I get the best deal on a second charge mortgage?
To get the best deal on a second charge mortgage, work with an experienced broker, who will help you to secure the best possible offer. This kind of borrowing can become very costly over time, so it is really important that you find the greatest deal you can. Get in touch with ABC Finance to learn more about how we can find you the ideal interest rate for your needs.
To work out your costs, try our second charge mortgage calculator.
Can you get fixed rate second mortgages?
Yes, you can get fixed rate second charge mortgages. A fixed rate gives you certainty that your monthly payment won’t change throughout the fixed interest period.
A variable rate mortgage may suit some borrowers. If you are confident that interest rates will drop over time and you have the financial stability to withstand any potential increases if things do not go your way, consider this option.
A tracker rate is a form of variable rate 2nd charge mortgage that sees your interest increase or decrease in line with the Bank of England Base Rate. If this core rate drops, you’ll pay less – but if it spikes suddenly you’ll need to pay more.
Are second mortgage rates higher?
Yes, a second charge mortgage will be charged at a higher interest rate than a first charge mortgage.
The fact that a second charge mortgage is secured against your property will work in your favour when it comes to interest rates. You’ll usually get a much better deal than you would on an unsecured loan, and you can apply for higher sums over a longer repayment period.
Can a broker help me to get a better rate on my 2nd charge mortgage?
Yes, a second charge mortgage broker will almost always find you a better interest rate than you would be able to source online. Mortgage brokers will access lenders and interest rates that will not appear through a traditional Google search, so lean on the experience, expertise, and opportunities only specialists can provide.
Contact ABC Finance to learn how we can help you find the perfect second charge mortgage.
What fees are charged on second mortgages?
The fees charged on second mortgages are:
Lender arrangement fees
Lender agreement fees relate to the administration involved in setting up a second charge mortgage. You can add this to your loan amount or make a lump sum payment to settle up in advance if that is your preference.
Discuss this fee with a lender before you sign any agreements, as the total sum will vary.
If a third party, such as a secured loan broker, arranges your second charge mortgage, they will charge a fee for their services.
All brokers have their own fee structure, so you’ll need to discuss this with your advisor before signing any contracts. The average cost of a broker is around 10–12.5% of the total sum of the loan. If you take out a loan for £35,000, you can potentially add up to £4,375 to your total fee.
That may sound frightening, but remember, that’s only £15 per month over a 25-year term. If you took out a loan for the same sum at 9% as that’s the best deal you could find, you will pay up to £65 more each month than you would if a broker finds you an interest rate of 6.5%. Even with a broker fee, you’re saving £50 per month.
The news gets even better if you take out a second charge mortgage through ABC Finance. Unlike other brokers, we operate a flat-rate fee of just £1,495, no matter how much you choose to borrow. That’s a mere £3 per month over 25 years.
As a second charge mortgage is based upon the equity in your home, the lender will need to complete a valuation of your property. This will determine how much you can borrow.
You can get your own valuation from an estate agent, who will typically perform this service for free. Local estate agents have a fundamental understanding of the market value of property in your area. However, the second charge mortgage lender will still arrange their own valuation.
The average cost of a property valuation is around £100, which will be added to the total sum repayable. If the lender has any reason to question the value of your property, perhaps due to structural damages or chronic concerns such as the presence of Japanese knotweed, they may proceed to a full survey to ensure that the market value quote is accurate. This will likely cost an additional £400–500.
Early Redemption Fee
If you wish to pay your second charge mortgage before the end of the term, perhaps because you have enjoyed a financial windfall, you will need to contact your lender for a redemption statement.