How the two loans interact
Your interest-only mortgage continues unchanged. The secured loan adds a second monthly payment made up of capital and interest. Lenders assess affordability on both payments together, and some will also consider how a future switch of the mortgage to repayment would affect your budget.
The combined loan to value is the mortgage balance plus the new loan against the property's value. Because an interest-only balance does not fall, the equity available for a second charge grows only through property value changes or overpayments.
Your repayment strategy
Lenders will ask how the mortgage capital will be repaid, for example from savings, investments, downsizing or a future sale. A second charge lender may want to see that the plan is credible before adding to the borrowing secured on the home.
If the plan is to sell, remember that both loans are repaid from the proceeds. Our guide to selling with a secured loan explains the order of repayment.
Term and timing
Consider how the secured loan term lines up with the end of the mortgage term and with your retirement plans. A loan that runs beyond the mortgage term or into retirement will be assessed on the income you expect at that point, not only on today's earnings.
Alternatives to consider
A further advance from your existing lender, a remortgage onto a repayment basis, or a smaller loan over a shorter term may fit better for some households. Ask the broker to compare them, with the total cost of each in writing.
Before you commit
- Be clear how the interest-only capital will be repaid, and when.
- Check the combined payments against your budget now and at retirement.
- Compare a secured loan with a further advance or a remortgage.
- Ask what happens to the secured loan if you later switch the mortgage to repayment.