Officially known by the name of a “Second Charge Mortgage”, a Secured Loan is effectively an additional mortgage alongside the one you already have, though with interest rates that are higher than the standard amount. This is common with people who are wanting to borrow more than their current lender is willing to lend them.
The reason that these interest rates tend to be higher, is because 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 them not making money back, hence why they opt to charge higher rates of interest. Whilst this is often known as an expensive “last resort”, they can often be incredibly helpful for certain situations.
When taking out a Second Charge Mortgage, your first mortgage stays exactly the same. The new amount is borrowed from a different lender and a separate direct debit. When it comes to paying these amounts back, the first lender will always take priority and the second lender will usually get whatever is left. If the property sells for enough and has enough equity in it to cover both the first and second charge, with some left over, you get to keep some of it.
The length of this new amount varies, as you could take it out over a shorter or longer-term than your main 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 - 24/03/2021