A second mortgage is a mortgage taken out on a property that already has a primary mortgage. Essentially it’s a low-interest, long-term loan secured against the value of your property.

Usually, you can take a more substantial sum of money than with an unsecured loan. Investments, starting a business, or enhancing your home are just some of the ways to use this lump sum. Here’s a quick rundown of six ways that obtaining a second mortgage can be beneficial and potentially life changing.

Change your life with a second mortgage

1. Home improvements

We’ve all dreamed of improving our homes at some point. Whether it’s an indoor swimming pool, extension or a complete update and remodel of your property, a second mortgage gives you an opportunity to achieve this goal. It makes sense that you should use the equity you’ve gained over time in your property to fund a home improvement project.

The amount you borrow is related to the value of your property, the equity available and the length of time you plan to remain.

2. Purchase a business

If you’ve always wanted to run a company but have been unsure how to go about starting a business, buying an existing business could be your route to making this wish a reality. Most banks expect 20% of the value of the company paid in cash, with the remainder covered by a secured loan such as a second mortgage.

You would need a realistic business plan indicating future growth, along with the last three years’ accounts to demonstrate the business’s profitability.

3. Holiday home

The logistics of buying a holiday home abroad can seem daunting, but a second mortgage may be a way to circumnavigate some of the potential problems. The prices of many holiday properties are much more affordable than any like-for-like property in the UK, and the total cost can be a fraction of the equity available in your home.

Releasing this equity with a second mortgage will enable you to purchase the property. Then you can sit back and enjoy the sanctuary of a holiday retreat, while your investment increases in value.

4. Fund a startup

If you have a great idea for a new business, you can use a second mortgage to fund your startup, using your money to develop your company by researching the marketplace to ensure demand for your product or service.

You can also create partnerships to help bring your ideas into reality. Whatever, you’ll need to develop a watertight business plan that demonstrates how you’ll generate profit in the future.

5. Investment property

More and more people are unable to afford to purchase property in the location they desire. As a result, many 20–34-year-olds still live with their parents. Older people, approaching retirement, also find it difficult to take out a mortgage or are unable to pay an existing one, leaving them with housing difficulties.

An ideal solution is to use a second mortgage to purchase an investment property. This way, you can offer family members a place to live and create a financially beneficial arrangement for everybody concerned.

6. Debt consolidation

It’s common for people to have a range of debts in the form of credit cards and unsecured loans, often with relatively high interest and charges. For example, an outstanding debt of £10,000 could be made up as follows:

• £7,500 credit card debt with interest at 17.9%
• £2,000 overdraft with a monthly fee of £20 and 18.9% interest
• £500 Pawnbroker debt at 68.8% interest

However, a second mortgage can help you to free up monthly expenditure. It also eliminate a great deal of the interest and all of the charges, leaving you paying an average 12.6% interest. This will reduce your monthly outgoings and free up cash to spend on those little luxuries.

Second mortgages are useful in a broad range of circumstances. Whatever your ambitions, a second mortgage can help you to achieve these by freeing up the equity in your home.

For comprehensive financial advice, contact Expert Wealth Management today on 01993 772467 or email us here.