Individuals who already own their property with a mortgage are normally eligible to apply for a homeowner loan. In this way, they can borrow extra money using their home as collateral against the loan.
A secured loan (also referred to sometimes as a secured homeowner loan) lets you take out a loan which is secured against the equity in your home. As with most loans that are secured, a home loan is generally perceived by the lender to be a lower risk for them, meaning that interest rates are likely to be lower than they would be on an unsecured product. It is normally possible to borrow a larger sum of money when going down the secured route.
Your home is secured by the loan provider and is known as a’ second charge’ — that is, it ranks behind your mortgage (referred to as a ‘first charge’). This means that if you were to default on both your mortgage and your homeowner loan, the mortgage would be first in line to be repaid with the proceeds from the sale of your property, with the loan being second on the list.
You can use your homeowner loan for any purpose that you choose (with the caveat that it must be legal and not for commercial gain). Secured loans of this type are often used for home improvements or to buy a big-ticket item such as a car. They may also be used to consolidate existing debt.
The term of a homeowner loan will normally be between five and twenty-five years, and regular monthly repayments must be made during this time.
Secured homeowner loans are appropriate for those who own their home outright or have a mortgage on a property and who wish to borrow a fairly considerable sum of money (up to £250,000). You will usually be required to have a decent amount of equity in your property, as this provides the security that the lender will be looking for.
There are a several things that you should consider carefully before applying for a secured homeowner loan.
Firstly, the ‘second charge’ on your home means that should you default on your repayments, your lender will have the right to pursue you through the courts for a repossession order and ultimately the sale of the property to recoup their loss.
The interest rate on a secured loan is often variable, making it harder to budget over time as the rate could increase or decrease. If your mortgage is also set on a variable rate, you could get hit twice if the interest rate spikes, so factor this into your calculations.
The main points that you should keep in mind are as follows. As the loan is secured against your property, this ultimately means that you may lose your home if you fail to keep to the repayment schedule. Additionally, as you are potentially able to borrow large sums of money this way, you may be tempted to apply for a loan that is larger than you require. Only ever borrow an amount that you can realistically afford to repay.
However, there are several advantages in taking out a homeowner loan. You can borrow a larger sum and pay a lower rate of interest, which could be useful when consolidating debt such as the ones on offer from Evolution Money, paying for a major purchase or renovating your property.
Finally, when you are considering any financial product, make sure you carefully consider all your options and always do your research before committing. It is important not to rush into a decision that you may later regret.