Secured loan for home owner wanting to consolidate debt

Written by Editorial Team
Last updated: 26th May 2019

A young homeowner was looking for a £70K loan against the value of his home, to consolidate credit card debts and a personal loan. As a sales executive, a third of his annual salary is made up of commission. His partner is a self-employed sole trader.

He approached his mortgage lender for a further advance on his mortgage, but they weren’t willing to lend for debt consolidation.

Via Fair Investment he found a second-charge lender who was willing to take 100% of his earnings into consideration, plus his partner’s. And they would be willing to accept overpayments and don’t impose penalty fees if the loan is repayed early.

What is a secured loan?

  • A second-charge mortgage (or “homeowner loan”) is a secured loan – secured for the lender against the value of the property.
  • It’s called a second-charge mortgage because it sits behind the primary (first-charge) mortgage on a property. In the event that a borrower isn’t able to keep up with their loan repayments and the property is reposessed, the first-charge lender takes precedence for repayment.
  • As a result, interest rates on second-charge loans are higher than standard monthly mortgage repayments, reflecting the higher risk for the lender.

When secured borrowing can cut down costs

Nonetheless, for this borrower the overall monthly cost of his new second-charge mortgage was the same as the amount he had been paying just for his personal loan.

The spare capacity on their monthly budget now makes it possible for him and his partner to make inroads on reducing their overall debt instead of just struggling to keep up with the interest payments.

Secured loan options