How are first and second Charge Mortgage Different?

Knowing everything about mortgages before you take out one is really important. Since second charge mortgage has recently gained awareness, people do not know the difference between a first charge mortgage and a second charge mortgage.

First Charge Mortgage
A first charge mortgage is referred to the secured loan that is taken out on a person’s property. The loan taken out is based on a variable or fixed interest rate. The time period for loan repayment can be from ten years to eighty.

Second Charge Mortgage
Second charge mortgages are the loans, which are taken on behalf of a property’s equity. People usually take out a second mortgage for home renovations, personal buying, a business venture or simply to repay their first mortgage. As compared to remortgaging, a second charge mortgage is more affordable because you do not have to touch your fixed interest rate set on the first mortgage.

Difference between First and Second Charge Mortgage

• A first charge mortgage is usually taken out for buying a house on affordable terms while a second charge
mortgage is usually taken out for personal buying, home improvement or making first mortgage payment easier
• The first mortgage lender has the legal right to take certain legal actions if the loan is not paid within
time period whereas the second mortgage lender has the legal right to posses your house if the loan is not
paid. However, the first right to the house goes to the first mortgage lender in case if the re-payment is
not completed
• Remortgaging the first loan can leave you in debts whereas a second charge mortgage gives you the
opportunity to borrow less money with cheap interest rates
• First charge mortgage can only be taken out if a person has good credit history whereas a second charge
mortgage can be taken out even if a person does not have good credit history
• First charge mortgage requires a steady and big income whereas a second charge mortgage requires a small
income
• First charge mortgage can be repaid in ten to eighty years whereas second charge mortgage repayment has
only a time period of two o five years
• A first charge mortgage is usually taken out on a house whereas a second charge mortgage can be taken out
using any equity of the house
• A first charge mortgage usually has high interest rates whereas a second charge mortgage has relatively
cheaper interest rates

Since the new rules regulated by FDC on second charge mortgage, many people have applied for second charge mortgages. However, borrowers have to now go under strict scrutiny by lenders in order to pass for a second charge mortgage because the rules for both the mortgages are now same.

This has created a difficulty for the borrowers but a great opportunity for lenders. Lenders can now charge high interest rates in the beginning to see if the borrower will be able to keep up with the monthly instalments.