What Is The Best Loan Structure
Cross Collateralisation is a loan structure most banks will use, it involved using your existing home as security to buy a new property putting both homes under the one mortgage.
The downside to cross-collateralisation is it can limit your options in the future.
Cross-collateralization can lock you in, and limit your options.
For example, if you want to sell your existing home in the future you will need to revalue your new home at the point, and if the valuation comes in lower you might OWE the bank more money.
The upside to cross-collateralisation is that the banks will sometimes give you sharper interest rates.
There can be pros and cons to crossing your properties within your structure, either way, wed suggest speaking with a Mortgage Broker in Brisbane to find out what is best for you.
To discuss your situation, contact our Mortgage Brokers on 1300 088 065 or fill in our free online enquiry form to get a callback.
Is A Remortgage A Second Mortgage
A remortgage is not a second mortgage. Remortgaging means you are either switching your mortgage deal by moving it to another mortgage – normally cheaper with the same lender or paying off your mortgage by switching to another mortgage lender. Remortgaging is normally done to either save money when your current fixed or discount rate expires or to turn some of the equity in your home into cash you can spend now without moving house.
Additional Costs When Buying A Second Home
Second-home stamp duty
If you already own a property, you must pay a higher stamp duty charge when buying a second home in the UK. You will typically have to pay 3 per cent above the normal rates. The residential rates for England and Northern Ireland are shown below.
For example, if you are buying a main residence in England worth £600,000, you will pay £20,000 in stamp duty .
If, however, the same property is your second home or a buy-to-let, you will pay £38,000 .
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What Is A Heloc
A HELOC is a loan that is underwritten using your current homeâs value. For example, if youâve owned your home for 10 or so years, then you likely have a significant amount of equity, or money, invested in it.
A HELOC essentially serves as a sort-of second mortgage, so the bank would give you a maximum loan amount for you to use based on the equity that you have in your home.
HELOCs have a draw period, typically ranging from 5 to 10 years, during which time borrowers can access the funds. During the draw period, the borrower is only required to pay interest on those funds that they actually drew out and used. After the draw period closes, borrowers are required to pay off the HELOC, or refinance it to another loan, during the repayment period. Repayment periods typically range from 10-20 years.
How Much Should You Put Down On A House
Putting 20% down is often ideal for more financially established buyers or those with a larger cash or savings reserve.
Benefits of a larger down payment includes:
- A smaller monthly mortgage payment
- More equity in case you need to move and sell
- No private mortgage insurance
- Less risk when selling
For those who would like to put less than 20%, many lenders offer loans that require a smaller down payment. Here are some benefits to putting less than 20% down:
- More cash on reserve for emergencies
- Likely to become a homeowner faster, since you won’t have to save as much cash
- Greater financial cushion for your lifestyle
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Getting A Second Mortgage
A second mortgage is a second loan that you take on your home. You can borrow up to 80% of the appraised value of your home, minus the balance on your first mortgage.
The loan is secured against your home equity. While you pay off your second mortgage, you also need continue to pay off your first mortgage.
If you cant make your payments and your loan goes into default, you may lose your home. If thats the case, your home will be sold to pay off both your first and second mortgages. Your first mortgage lender would be paid first.
How Much Do I Need For A Second Mortgage Deposit
The amount of deposit youll need for a second mortgage will depend on:
- Mortgage type
- Your conduct on your existing mortgage
- Your credit history
- The property type
Most lenders will only offer 80% LTV deals for second mortgages, which means you should aim for a 20% deposit. That said, you may require a higher deposit amount depending on the rest of your application and the property itself. Furthermore, it may be possible to secure a second mortgage with a lower deposit.
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How Easy Is It To Get A Second Mortgage
If you are thinking about getting a second mortgage, you need to raise a second deposit and generally, you will have more costs on a monthly basis. This will be factored into the affordability checks the bank will carry out to determine if you should be allowed to take out a second mortgage, alongside your other bills, such as credit cards, TV subscriptions or even gym membership fees and other regular spending habits.
If your current lifestyle allows you to live within your means and you only have a small portion of your income left over each month, then you are unlikely to be able to afford a second mortgage.
Even if you plan to cut back on a few things, banks will make the assessment based on how you have been living over the past few months.
What Is Home Equity
Home equity is the difference between the value of your home and how much you owe on your mortgage.
For example, if your home is worth $250,000 and you owe $150,000 on your mortgage, you have $100,000 in home equity.
Your home equity goes up in two ways:
- as you pay down your mortgage
- if the value of your home increases
Be aware that you could lose your home if youre unable to repay a home equity loan.
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Is It Better To Get A Home Equity Loan Or Refinance
The choice between a home equity loan and refinance depends on your financial circumstances.
A cash-out refinance replaces the first mortgage on your home with a new mortgage thats more than the current outstanding debt on your home. You then receive the difference between the existing mortgage and the new mortgage in a one-time lump sum. This option may be best for someone who has a high interest rate on a first mortgage and wants to take advantage of lower interest rates.
A home equity line of credit may be a better option in situations where the homeowner has ongoing financial needs, such as recurring tuition payments or a series of home update projects, and wants to keep drawing money as needed. Its also a better choice if you already have a good rate on your mortgage.
Can I Get A Second Charge Mortgage To Start A Business
You can potentially use the equity in your home thats released by taking a second charge mortgage to start a company or grow your business. But before you consider taking out a loan against your property, theres a few things to think about:
- how much will starting your business cost?
- is it likely to be profitable in the long-term?
- if you go into business, will you still be able to afford your mortgage repayments ?
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Remortgaging To Buy A Second Property Abroad
You dont just have to look in the UK for a second property. Many lenders will let you remortgage to buy a home abroad. Unless you are buying a property outright, you would need an overseas mortgage. Many UK lenders can help arrange this, but they may only cover countries where they have offices.
There are extra considerations when buying abroad as you need knowledge of the foreign property market so you are aware of the surroundings and possible rental yields if you rent it out. Many of the documents and legal terms may be in a different language so you will need a lawyer who can translate and ensure you understand what you are purchasing and any risks and potential issues.
There will also be different property taxes and charges and another major factor is currency risk. You need to consider the exchange rate when buying in a different currency and compare what your bank or other providers, such as MoneyCorp, will charge to transfer your funds. If you take out a mortgage in a local currency abroad there is also a risk that if the pound falls in value, the amount you are paying in loan repayments will increase.
Your Home Is Collateral
When you take out a second mortgage, you are using your home as collateral to the lender. This means that if you do not pay, the bank has the option to foreclose just as it does with a first mortgage. That said, because you have a physical asset backing your loan, your interest rate will be substantially lower.
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Get Approved To Refinance
A mortgage refinance differs from a second mortgage in that it replaces your existing mortgage with a new one. Since your available equity is the same either way, cash-out refinances will probably allow you to pull the same amount of money out of your property as second mortgages.
Getting approved for a refinance or second mortgage will mean meeting standards much like what you had to meet to get approved for your original home loan, though all mortgage lenders do have their own requirements. In order to get approved, you should try to make sure that you have the following:
- A credit score of at least 620
- A debt-to-income of 43% at most
- At least 15% equity in your home
It is possible to refinance with a lower credit score or less equity. However, if you want to get better interest rates or lower monthly payments, your score should be higher. You can read more about refinancing here. Here are some good tips on how to improve your credit score.
Can I Get A Second Home Mortgage With 100% Ltv
The vast majority of lenders would be reluctant to hand out a 100% LTV mortgage of any kind, due to the level of risk involved.
The most viable way to get a mortgage with no deposit is by having a family member or friend act as a guarantor.
With a guarantor mortgage, the friend or family member who is helping you out will either be required to put up a property they own as security, or place a lump sum in a savings account held by the lender. They will be unable to withdraw from this pot until a certain amount of the mortgage has been paid off.
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Joint Mortgages For Second Homes
Most mortgage products are available to more than one person. Maybe you want a mortgage for both you and the person you plan to share a holiday home with, or maybe a business partner wants to invest in a property with you. Whatever the case, the type of mortgage you need wont change just because theres more people involved. Instead, you take out a joint version of whichever mortgage youre after, e.g. a joint residential mortgage, a joint buy-to-let mortgage, a joint bridging loan, a joint development loan etc.
Most lenders will only offer joint mortgages for second properties to 2 people, but some lenders will allow up to 4, especially if youre taking out a mortgage for an investment property. John Charcol can recommend lenders who offer mortgages to multiple people.
How Much Equity Do I Need To Buy A Second Home
The amount of equity release youll need will depend on a number of factors what is the existing value of your property, do you still have a mortgage outstanding, are you looking to release equity from a buy to let mortgage amongst a lot of other considerations.
To be clear though it is generally advised that youll need an equity release loan that would cover the cost of the second home entirely. Its unlikely that youll want to be left with any outstanding mortgage arrears on your equity release plans when you buy your second home.
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Uses Of Second Mortgages
There are few restrictions on how you can use the funds from a second mortgage. Many people use a second mortgage to fund big expenditures such as home improvements or repairs, to buy a second home or to pay off a big debt. Its generally not a good idea to use it for something frivolous such as a vacation or new clothes, because you are risking your home in the process.
Home Equity Line Of Credit
Home equity lines of credit, or HELOCs, dont give you money in a single lump sum. Instead, they work more like a credit card. Your lender approves you for a line of credit based on the amount of equity you have in your home. Then, you can borrow against the credit the lender extends to you.
You may receive special checks or a credit card to make purchases. Like a credit card, HELOCs use a revolving balance. This means that you can use the money on your credit line multiple times as long as you pay it back.
For example, if your lender approves you for a $10,000 HELOC, you spend $5,000 and pay it back. Then, you can use the full $10,000 again in the future.
HELOCs are only valid for a predetermined amount of time called a draw period. You must make minimum monthly payments during your draw period as you do on a credit card.
Once your draw period ends, you must repay the entire balance left on your loan. Your lender might require you to pay in a single lump sum or make repayments over a period of time. If you cannot repay what you borrowed at the end of the repayment period, your lender can seize your home.
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Im Buying A Second Home To Help A Family Member Get On The Property Ladder
Buying a second home to help someone else buy their first home may not be the best way to help. If you are listed on the deeds then it will count as an additional property for stamp duty purposes and an extra 3% tax will be due. This could make the property significantly more expensive. Find out instead about several other ways to help a family member get on the property ladder.
What Is A Second
The loan you use to buy your home is called the first-charge mortgage. A second-charge mortgage, or a second mortgage as it is often also known, is a secured loan against your home that you can take out if you already have a mortgage.
It is not to be confused with a mortgage for a second property such as a buy-to-let or holiday home.
It is a brand new loan from a different lender, not a top-up from your current mortgage lender.
The number of people taking out a second-charge mortgage dropped as a result of the pandemic. The latest figures from August 2021 show that new agreements were up 5% on the previous year.
The market has reported more normal levels of new business in recent months which we expect to continue in the final quarter of 2021, says Fiona Hoyle, Director of Consumer & Mortgage Finance and Inclusion at the Finance & Leasing Association.
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When Could A Second Charge Mortgage Be Cheaper Than Remortgaging
If youre on a fixed rate deal and have to pay early repayment charges for remortgaging, taking out a second charge mortgage could be a cheaper way of raising money even though the rate of interest might be higher.
If your credit rating has gone down since taking out the first mortgage on your property, remortgaging could mean you end up paying more interest on the whole of your outstanding mortgage. If, instead, you opt for a second charge mortgage, youll only have to pay the extra interest on the new amount you want to borrow.
If you can afford the repayments, you might prefer a second charge mortgage so you can choose a shorter loan period compared with borrowing more by remortgaging. Here, your existing mortgage might continue for 20+ years but the second charge mortgage for just 10 years reducing the overall cost of the second loan.
You, your lender or advisor will need to work out which is the most cost-effective solution for you, based on your personal circumstances.
Pay Off Credit Card Debt
If you have a high amount of credit card debt, a second mortgage could be a good idea. A home equity loan will allow you to get rid of the debt on your cards with funds you then pay off at a much lower rate. A second mortgage can also be useful for debt consolidation if you have other high-interest debt.
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