These days it’s difficult to get by without some form of financial
assistance most of us have loans, mortgages, credit cards,
store cards or other types of debt. Taking out a personal loan is one
of the most common and convenient ways in which to borrow money. There
are two main types unsecured or secured. Unsecured loans are loans
without any form of security tied to them as a guarantee of repayment,
whereas secured loans are guaranteed by some form of security to
safeguard the lender in case of non repayment. Normally the security
used in such loans is your house whether you own it outright or have
a mortgage on it. (Loans secured against a house that already has a mortgage
tied to it are known as second charges, and loans secured against a house that is
fully owned are known as first charges.)
Homeowners therefore have a real advantage when it comes to borrowing
money, as owning property provides great potential for freeing up capital for personal use. Homeowner loans, as they are often known, allow you to use the equity available in your house to borrow money.
(Equity means the value of your home minus any outstanding debts
secured on it, such as a mortgage.) They have many benefits:
Equity is the key to unlocking large sums of cash from the
value of your property. Homeowner loans allow a much higher amount of
lending over a longer period than unsecured loans, as they are guaranteed against the value of your property and are therefore
considered less of a risk to the lender than an unsecured loan. Even if
you have negative equity (i.e. your mortgage or debt is higher than the value of your home) it’s often possible to get a homeowner loan, as many lenders will lend up to 120% of the value of the property.
For the same reason, homeowner loans tend to have a lower rate of interest than unsecured loans. This means lower, more affordable monthly repayments than an unsecured loan.
As with any other personal loan, the money is yours to spend in
whichever way you want. You might want to make some home improvements,
purchase land, use the capital to start up a business, buy a car, go on holiday
or consolidate debts or loans.
Some people have problems, often because of poor credit
history. However, as homeowner loans are secured and provide a guarantee to the lender, people who have previously been unable to qualify for an
often find it much easier to get a secured loan, thereby giving them access to borrowing that they could not otherwise have obtained.
Homeowner loans can also
be as flexible as you want them to be. At the outset you’ll discuss and
agree with the lender what terms and conditions best suit your needs.
Typical repayment terms may be anything from three to 25 years,
normally paid in monthly instalments, and loan amounts tend to range
from £2,000 to £60,000. Interest will be charged on the
amount that you borrow, which is known as the APR or annual percentage
rate. The specific details of your loan the amount, interest rate and
repayment term will be calculated based on the equity available in
your property (which will need to be valued), your personal financial
status and credit history and the lender’s confidence in your ability
to repay.
Research the cost of your loan carefully before you sign up to
anything. As with any other purchase, it’s essential to do a bit of
research and shop around until you get the best deal. You may find that
the interest rates seem to vary considerably from lender to lender.
However, beware of how the APR is advertised different companies
calculate their APR in different ways, and often display their monthly
rates more prominently than the APR, so it’s not always easy to
compare. (Monthly rates can be cheaper than the APR, which is very
misleading.) For each product, find out what the APR is and how it is
calculated so that you understand exactly how much the monthly
repayments will be and how much you’ll be repaying in total. This will
enable you to compare like for like between products.
Charges and penalties can make a big difference to the cost of the
loan. Many policies penalise early repayment, and others contain hidden
fees and charges. Always read the small print and ensure that you
understand the terms and conditions exactly. Ask the lender to explain
any areas that you’re unsure about before you commit to anything.
Another useful tip to bear in mind is that the shorter the repayment
term, the less interest you’ll be paying and therefore the lower the
total cost will be to you. It’s therefore best to find the shortest
term that you can manage.
Remember that it’s not just traditional banks, building societies and mortgage lenders who sell
financial products.
Nowadays there are many other types of lender in the market providing
competitive deals at competitive prices. You’ll probably find that
supermarkets and online providers offer the best value for money.
Most importantly, weigh up the risks and benefits of using your home as
security for a loan to ensure it’s the right thing for you. On the whole, homeowner loans
offer much better value for money than unsecured loans and are very convenient for
people who are unable to qualify for an unsecured loan. However, before
you proceed, you should analyse your personal finances, work out your
budget and be confident that you’ll be able to keep up the repayments,
otherwise you could end up losing your home.
your property is the key to When you’ve considered all these important
factors relating to homeowner loans and looked
around for a suitable product, you can be sure that you’ll be getting a
better deal with a homeowner loan than you would be with an unsecured personal loanraising
the cash you need in an affordable way.