A second mortgage is a smart way to release your equity and borrow funds for varied purposes. All across the UK, people obtain it and enjoy the benefits if offers. If you have ever explored this choice, you know the brighter sides of the second mortgage. The reach of benefit of a financial product obstructs when they are disturbed by the myths. As a borrower, you should always keep a caution to avoid myths because they literally spoil financial lives.
Here are the common myths about the second mortgages that you should always avoid. The myths are accompanied by the rational answers to show you the actuality behind them.
Myth – No property valuation is required for a second charge mortgage
Truth – Seriously!! ?? Who told you that?? A mortgage is a mortgage, whether you take it for the first time or the second time for equity release or through a remortgage. You have to follow every mortgage procedure from starting to the end.
The lender, as always, sends the surveyor to visit the property for a deep valuation. Then the surveyor sends the report to the underwriter and the further process starts only after the confirmation of the price of the property.
Myth– It is not possible to obtain a second mortgage after COVID -19
Truth – Who told you that??? It is completely wrong and like any other property loan, second mortgage is also back. The only difference can be seen on the part of equity, because the real estate market is down. It means your equity level will also go down and in that case, you cannot borrow a big amount. But certainly, it is a myth that second mortgage is unobtainable due to corona effect.
Myth– A second mortgage is similar to a home equity line of credit
Truth – No, both are different. In a second mortgage, you take out all the money and use it for the purpose. This loan is of a fixed term. However, in case of a home equity line of credit, the money is withdrawn according to the need.
You can say that a line of credit is majorly for the recurring expenses. For example – if you want to borrow for a home remodeling, a line of credit is a good option because it is difficult to make an exact estimation of the expenses.
Myth – Second mortgage and remortgage both are the same
Truth – Just like some people misinterpret that second mortgage is similar to the home equity line of credit, some take it as a remortgage. However, you should know that in a remortgage you get a new deal with different rate of interest and repayment plans.
In a second charge mortgage, you pay interest only on the amount you borrow. In remortgage, one has to pay repayment charges that are not applicable in the second charge mortgages. Usually, the latter is considered cheaper than the remortgages.
Myth – Credit score does not matter because I already own the home
Truth – Once again, a fake perception that is widespread and seeks a weak prey that can spoil their financial stability. If you are careless about your poor credit score or poor debt management due to this myth, then get ready for this eye-opener.
A credit score is always important to avail any kind of financial product. Definitely, you own the house but the amount you borrow through equity release needs to be paid back to the lender. In that case, the question of repaying capacity arises and on that part, credit score is a big mirror. If tells how good or bad you are in your finances and what is the capacity to repay the borrowed money.
Myth – I cannot take a second mortgage with the new lender
Truth – You can easily take the second mortgage from the new lender. This perception perhaps got its shape because normally it is considered more convenient to take the second mortgage from the new lender. The new mortgage company may take valuation fee and other charges. Such things make the process more bulky and lengthy.
It is always on your choice to take the mortgage from either the same lender or the other lender. Explore the market first and find out the best possible option for you. It is just about the suitability of the option. However, to be precise, it is never impossible to get a second charge mortgage from a lender.
The above myths are common but they are prevalent and can harm anyone who crosses their way. Above all, myths are always contagious; before you spread anything to others, know the reality. Never let the wrong perceptions drive you and your decisions because wrong things lead to wrong conclusions.