Types of loan explained

Comparing secured, bridging and unsecured mortgages

You need to be totally sure that you choose the right type of loan to suit you. Here's our guide to help you understand the differences between secured, bridging and unsecured mortgages.

Second mortgages

  • Second mortgages are guaranteed against your property

    When you take out a second mortgage, you're promising to use your property to pay the money back if you can't repay it in the normal way. That's why second mortgages are usually aimed at homeowners who want to borrow relatively large amounts (£15,000 - £250,000 typically).

  • Second mortgages are not dependent on your credit rating

    Banks and other lenders can be more willing to lend if you offer security, which means these types of loan can work for you whether your credit rating is good, or not-so-good. The amount you can borrow, the repayment term and the interest rate depend on your circumstances, including the amount of equity you have in your property.

  • You can borrow more

    Second mortgages are usually for amounts between £15,000 and £250,000. They are often called 'second mortgages'. Remember, they are separate from the mortgage on your home which means any mortgage deals you have in place aren't affected.

  • You can arrange different payment terms

    The loan is not linked to your mortgage, so you have the flexibility to structure it the way you want.

Bridging loans

  • You can borrow very high amounts

    As long as you can prove that the finance to repay the loan is pending, there is virtually no limit to the amount you can borrow. A business could borrow millions to ease the process of a factory relocation, just as easily as an individual could borrow thousands to ensure they secure their dream property prior to their own sale going through.

  • Higher interest rates, shorter repayment periods

    Because bridging loans are designed to bridge the gap of time before someone sells an asset or receives capital, they are not intended to have a long repayment period. Consequentialy, bridging loans come with a high APR to cover the lender in the event of the impending finances not materialising.

  • Bridging loans are paid out quickly

    Just as they are expected to be repaid quickly, so too are they paid out quickly. In most circumstances the key reason for someone opting for a bridging loan is speed.

Unsecured mortgages

  • You can generally only apply if you have a good credit score

    As long as you have a reasonable credit score you can apply for an unsecured mortgage. You don't have to be a homeowner, as no security is required.

  • Unsecured mortgages are for smaller amounts

    unsecured mortgages are typically for amounts between £1,000 and £25,000.

  • Unsecured mortgages have to be repaid over a shorter period

    Repayment terms are usually between one and five years at a fixed rate of interest. The shorter the term, the less overall interest you will generally pay, which is good. However, the monthly payments may be higher, which may be tricky to budget for.

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