SECOND CHARGE

If your looking to remortgage your property you obviously have a mortgage secured against your property already. But what if you have other mortgages and or loans secured against it? For instance you may have an original mortgage with the XYZ building society for £80,000. Then a further secured loan for perhaps some home improvements, of £10,000 with RST Loan Company.

When you remortgage to the new lender the original main mortgage with the XYZ will obviously be repaid, but what about the £10,000 home improvement loan? Well you can either “redeem” (pay off) the £10,000 2nd charge, by borrowing £90,000 on the new mortgage, or “Postpone” it. (Keep it) There are advantages to both options. If the 2nd charge is a much higher interest than a normal mortgage rate, which they usually are, then it will have the benefit of greatly reducing your monthly outgoings.

Though what about the term of the loan and the term of the new mortgage? Don’t forget if you consolidate the loan into the new mortgage you will potentially pay the loan over many years. The term “postpone” means that the new mortgage lender will insist on being the first registered charge over the property. In other words they will insist on being first in the queue to get their money back, in the event of repossession.

Therefore if you do intend to keep the second charge (and 3rd 4th 5th if you have them) the new lender will need to send out a “Deed of Postponement” (DoP) to the 2nd lender for them to sign. This is for their agreement to allow the new lender to leapfrog them in the queue. This does involve the new lenders solicitor undertaking this role on their behalf and this cost may well be passed on to you the borrower. It’s not normally more than £100 plus vat.

This process does take time, and can hold up your remortgage, so if you do intend to keep any additional charges registered against your property, make sure you send the new mortgage company full details of the loans. Name & address of loan company, account number etc, so they can get the process under way ASAP.

It would be wise to take Independent Legal Advice (ILA) on the DoP, so if you have appointed a solicitor you should discuss it with him/her.