Combining First and Second Charge Mortgages to Close a Deal
What does a prospective homeowner do when the mortgage market review (MMR) prices him/her out of the market even though he/she can truly afford the remortgage deal he/she has applied for? Believe it or not, this individual can combine new first and second charge mortgages together to close the deal. This trick is not all that common, but it is possible to close the deal for a broker who knows how to do it.
Here's a scenario explaining why someone might choose to combine first and second charge mortgages:
John is a homeowner who is looking to remortgage his property in order to avoid a much higher interest rate at the end of this fixed term. He applies for a remortgage that is limited to four times his annual salary, based on the stricter MMR. Even though he can afford substantially more, he cannot get enough in the remortgage deal to cover the transaction.
His broker can apply for both first and second charge mortgages from a limited number of lenders who are willing to consider both applications simultaneously. Provided John truly has the income to support both loans, these can be approved the same way a single remortgage would. John then gets the money to pay off his current fixed rate mortgage and is left with first and second charge loans to pay on.
Another possible scenario would be one in which the loan-to-value ratio was such that it would not support a full remortgage. But the same process would apply. John's mortgage broker would simultaneously apply for two loans with the knowledge that he truly can afford them both.
An Entirely Different Option
It could be that you have never heard of this option because brokers have tended to shy away from it until recently. Under the old way of thinking, a second charge mortgage was a last resort option that was only pursued if all others failed. But lenders are trying to encourage brokers to look at second charge deals as an entirely separate option that should be considered alongside remortgage and other products. In other words, it is a viable first option rather than a last resort.
Homeowners benefit from the second charge option in that it ultimately gives them more buying power when trying to remortgage their homes. This might be very important to the homeowner with an interest-only mortgage that is set to come due in the very near future. Where a remortgage might not be possible due to LTV issues, getting simultaneous first and second charge products would make it very possible to settle the interest-only deal fairly easily.
As for lenders, they obviously benefit from being able to loan more money than stricter lending requirements would otherwise allow. Offering simultaneous first and second charge products also gives banks willing to go that route a leg up in the highly competitive mortgage lending market. We expect to see more lenders offering the dual mortgage option in the future as competition heats up in rates continue to fall.
Ask Your Broker
If you have any plans to remortgage your home in the near future, be sure to ask your broker about simultaneous first and second charge products. You may actually do better with both interest rates and terms. Just keep in mind that it is best to get both loans from the same lender if possible. That way you are only dealing with one in the event some sort of unforeseen circumstance limits your income and inhibits your ability to repay on schedule.
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