Yes, it is possible to have two mortgages on one property, and this situation is commonly referred to as having a second mortgage. Essentially, you have two separate mortgages on the same property: a first and second mortgage – also known as a first charge and second charge.
Typically, the terms and rates for the second mortgage will not be as favourable as the first.
Why Is a Second Mortgage More Expensive When You Have Two Mortgages on One Property?
When you have two mortgages at once on one property, the second mortgage will typically be at a higher rate and have stricter criteria than you first mortgage, because your first mortgage (the standard residential mortgage) was arranged on the basis that this was the first charge registered against the property. This means that if you were to default on your payments, and the lenders had to enforce possession and sale then they would have first call on the funds to repay the mortgage plus costs.
Second charge mortgages run the risk that there will be insufficient funds left to repay their debt in full after the first charge is paid, and this risk is reflected in higher rates and charges.
How Equity Works with Two Mortgages on One Property
The equity you have left over in your property after the remaining balance of the first mortgage is deducted from the total property value will determine the maximum amount you can borrow on a second mortgage. This means that if you have built up a lot of equity in your home, you’ll have more equity to borrow against on the second mortgage.
Common Reasons for Two Mortgages on One Property
There are a few scenarios in which people might consider having two mortgages on the same property:
- Second mortgage for home improvements – homeowners may take out a second mortgage to fund major renovations or improvements to their property. This is often done when the cost of the improvements exceeds the amount, they can borrow through the existing lender
- Buying a second property – some individuals may choose to take out a second mortgage on their primary residence to finance the purchase of a second home or investment property
- Refinancing – homeowners might opt for a second mortgage when refinancing their existing mortgage. This could be to access additional funds, consolidate debt, or secure a better interest rate on a portion of their loan
It’s important to note that having two mortgages increases the financial responsibility and risk for the property owner. Both mortgages would have their terms, interest rates, and repayment schedules, and defaulting on either mortgage could lead to serious consequences, including the risk of foreclosure.
Before deciding you want two residential mortgages on one property, it’s advisable to carefully consider your financial situation, consult with a mortgage broker, and thoroughly understand the terms and implications of having multiple mortgages on your property. Call us today on 023 8235 2300.
