Second Mortgage Consumer Protection
A second mortgage is a loan secured against the equity in a property that is not a first mortgage. The second mortgage will come from a different lender than the first mortgage.
A first mortgage on a residential property is regulated by the Financial Services Authority and covered by the Financial Services and Markets Act 2000. A secured loan, however, is not covered by the Act.
Instead, an individual who obtains a second mortgage is entitled to several different forms of protection depending on the value of the loan.
Knowing the facts about a second mortgage and the remedies available to the borrower upon default is important considering the second mortgage will be secured against the borrower’s home.
A second mortgage with an initial value of less than £25,000 will be regulated by the Consumer Credit Act 1974.
Borrowers should be made aware that the Consumer Credit Act provides for a seven day cooling off period. During this time they can assess the terms and conditions of the second mortgage and redeem it if they feel the product is not right for their needs.
A second mortgage with an initial balance exceeding £25,000, however, will not be regulated by the Consumer Credit Act.
Because of this, borrowers should take out an insurance policy that will offer them protection if they cannot make the payments on the second mortgage due to accident, sickness, unemployment, or death.
There are many different policies available from various insurers to cover the payments on a second mortgage and terms and conditions vary considerably. Borrowers should research the market thoroughly before signing up to a policy.
If a borrower does fall into financial difficulty and cannot keep up the repayments on their second mortgage, they should contact the lender immediately to discuss possible solutions.
This is because a second mortgage is secured against the borrower’s home and if the borrower defaults on their repayments the lender has the right to repossess the property and sell it in order to recover the funds.
Because of the risks involved with borrowing money through a second mortgage, potential applicants should consider the downside carefully. Applicants should also consult with an independent mortgage broker to receive impartial and expert advice before securing a second mortgage against their home.
By: michael sterios
More Women Taking on Two Jobs to Pay the Mortgage
Pay packets are failing to keep up with rising mortgage repayments, prompting an increase in the number of people pressured by circumstances to take on second jobs. It is estimated that over 1.1 million UK workers have two or more jobs; a rise of almost five per cent in the last two years. However that rise doesn’t represent the true figure as the amount of two-job women has risen and the number of men doubling up in the workplace has actually dropped.
As real income has effectively dropped with wage rises failing to keep pace with inflation, there is concern that the number of people struggling to afford life’s basics is increasing. Add that to rising mortgage repayments and that is why the average number of women working two jobs has risen from 605,000 in 2005 to 649,000 two years later. However, over the same period the number of men working two jobs has dropped from 462,000 to 456,000.
Government figures highlight that real household disposable income has fallen by 0.3 per cent during the first quarter of this year alone and figures for the second quarter are likely to show that figure increasing. The TUC is becoming increasingly worried about the toll this is taking on workers with their head of economics, Adam Lent, pointing out that; “The key factors promoting this are probably the rise in mortgage costs as well as the general price of inflation.”
“We are very concerned about this. The impact on the work/life balance can be intense.”
Many financial advisers are warning would-be buyers to compare mortgages very carefully in this time of uncertainty in the financial markets. Because of the poor performance of the US market, where property values have actually fallen, banks and building societies are becoming stricter with their lending criteria. As a result people who are not considered ‘mainstream’ borrowers such as the self-employed, those with variable incomes and especially those with poor credit histories will find it much harder to find a sympathetic lender willing to offer mortgages at anything other than premium rates.
As UK mortgages become more expensive even more people are expected to opt for a second job simply to make ends meet. It appears that second jobs no longer provide for luxuries such as holidays or the Christmas fund, but are being taken in order to help the family survive. Expect the figures of people holding two jobs to rise dramatically in line with the rise in the cost of living and mortgage repayments.
By: Paul McIndoe
How do second mortgages work?
Second mortgages are taken if you have any home improvement plans or debts to pay off or simply put when you need extra finances. It is an additional loan taken against the same property. Such loans are considered riskier and hence lenders charge higher rate of interests on a second mortgage.
You may mistake second mortgage and refinance to be the same thing, but the truth is, they are different. A refinance means that you are renegotiating the terms of the first loan while a second mortgage means you are borrowing more money against the equity of your property.
How must you use a second mortgage?
Second mortgage is useful at times when you need a lot of extra cash. Home equity can earn you big loan amounts and hence most borrowers borrow on the equity of their home. You may need second mortgage for:
Avoiding Private Mortgage Insurance/PMI Creating a credit on the home equity line Making home improvements Purchase of more homes Debt consolidation programs
Are there any disadvantages of second mortgage?
The disadvantages of second mortgage are listed below:
A second mortgage can be dangerous for your home if you can’t pay it back. They have a higher rate of interest compared to a first mortgage. You may have to pay huge second mortgage fees.
What are the types of second mortgage to choose from?
You can choose from the 2 types of second mortgages:
1. Home equity line of credit – This works in a similar format to a credit card where you (homeowner) will be given a line of credit based on the equity of your home. You will have to pay interests on the amount borrowed. This interest rate depends on the market index rates making it more unstable than home equity loan.
2. Home Equity Loan – It is a set loan amount that is fixed for a said term and has a set rate.
Second mortgages can be found almost everywhere. Lenders are willing to offer such loans as they can charge high rate of interests. You may seek second mortgage from a lender you are already working with. There may be some rate cuts and may also be able to save some money on fees.
By: Samantha Taylor