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When you already have a main mortgage on your main residence or even your Buy to Let investment property and you need extra cash for something, what are your options?
In this guide I will try to explain the three main options for you, which are as follows:
Unsecured loan
This is an option if you are only looking to borrow a small amount of extra cash, it can be used for a wide range of reasons but you may find you are limited by:
- Maximum loan size
- Maximum term to repay could be 7yrs causing much higher payments than anticipated.
It's worth noting there are unlikely to be any fees with this type of arrangement and you can pay it back anytime, again without being penalised or charged extra in most cases, so this could work for some.The rates on offer however are likely to be much higher than any secured type loan simply because the lender has no asset to repossess should you fail to maintain your payments.
Winstanley mortgages has no access to any unsecured loans, this is not a service we provide.
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Further advance
This option is borrowing from your existing mortgage lender, this is your first choice option if you want to borrow extra money and have it tied to your property, you have to work out if you have the equity in the property to be able to borrow the amount you need.
First thing to say is your current lender may require you apply for this yourself, many lenders will allow your mortgage adviser to apply for it on your behalf, this may incur a fee for their work and time.
The rates on offer will be different for the amount you are asking for compared to the rate you already have on your existing mortgage and you will end up with 2 loans against your current property, with different rates and different expiry dates, this can mean you are reviewing your mortgage more often than you would like, but with proper planning this effect can be mitigated.
There are likely to be administration fees charged by both your mortgage adviser and lender in applying for a further advance and there could be fees for the chosen product so you need to do your homework to find the best balance of fees and rates available, your adviser is usually best placed to help with this. You may find using this option comes with restrictions on what you can use the money for or the affordability assessment can be strict so check the lenders criteria first.
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Secured loan
Sometimes referred to as a second charge using this option gives you the most flexibility in terms of lenders affordability and the much wider satisfactory purposes for the use of the money. The rates on offer can seem very high at first but when you factor in the risk the lender is taking with a second charge loan you can appreciate why the rates are higher than what you are used to seeing in the first charge market.
Another consideration is the high fees that master brokers in this field can charge, most charging an admin fee starting at £1995 with many going much higher, so choose your master broker wisely. Having said this, the reasons to use a second charge/secured loan are many and varied,
- Higher affordability calculations
- Vastly more acceptable purposes for the money, i.e pay a tax bill, put into a business, use as a deposit on further investment properties, debt consolidation, home improvements and many more
- No requirement for legal work to be done by a solicitor
Winstanley mortgages does not currently advise on second charge loans, instead we have access to a wide network of master brokers and can refer you to the one we feel can work out best for you in terms of fees, lender choice and speed.
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