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Secured Homeowner Loans
What is it?
It is a loan that is secured against your property. You borrow money based on the valuation of your home and the lender takes out a legal charge against your property. Secured homeowner loans are often offered at lower interest rates than unsecured loans. This is because the lender is taking less risk with the loan as they have your home as security if you fail to keep up your repayments.
As such a loan is secured against your property; your home is at risk if you do not keep up your repayments.
Who is eligible?
Firstly, you have to own your own home to be eligible for a secured loan. If you do not own your own home, you will have to seek alternative options such as an unsecured loan.
There may be other eligibility requirements. You will need to be over the age of 18 and you will generally need to hold a bank account and to be a permanent resident of the UK.
How much can I borrow?
The amount that you can borrow will depend on various factors. Firstly, it will depend on the value of your property and the equity that you have available. Loans are typically available up to a maximum of 75-90 per cent of the value of your home (less any existing mortgages or secured loans).
In addition, a lender will need to conform that a loan is affordable to you and so the loan will also be based on your income and outgoings.
Finally, the loan may also be based on your credit history – how you have managed mortgages, loans and other debts in the past.
How will I get the money?
Once your loan is approved, you can typically choose to receive your cash by cheque or via a direct transfer to your bank account.
What term can I spread my payments over?
You can choose a loan term that is suitable for you. Homeowner loans are generally available over a period of three to twenty five years. You can choose a loan term that fits in with your personal circumstances and that makes the payments affordable to you.
What are the main benefits of secured homeowner loans over other forms of borrowing?
Secured loans generally offer lower rates of interest and easier repayment terms than other forms of borrowing. As the lender takes a charge over your home, they have the benefit of knowing they can use the sale of your home to recoup their money in the event that you fail to keep up your repayments. That means the lending is less risky then credit cards or unsecured loans.
Secured loans can also often be arranged over longer payment terms than unsecured loans. Spreading the payments over a longer period can make them more affordable.
In addition, secured homeowner loans can often be agreed for you if you have struggled to obtain a loan through other sources. Many lenders won't agree an unsecured loan if you are self employed or if you have a less than perfect credit history. However, are generally available to a much broader selection of applicants.
I have CCJs, defaults or mortgage arrears. Can I still apply?
Yes. Many lenders are prepared to consider a secured loan even if you have a less than perfect credit history. With one person in the UK being made bankrupt or insolvent every 59 seconds of a working day and the Citizens' Advice Bureau dealing with over 8,000 new debt cases every day, more and more people have blemishes on their credit record.
Secured homeowner loans are available to you even if you have experienced credit problems in the past.
I am self employed? Can I apply?
Yes. Secured loans are available to you whatever your employment status. Even if you have been self employed for a short period of time or if you don't have the three years accounts required by many lenders, you can still apply for a secured loan.
What interest rate will be charged?
This depends on a number of factors. Typically, the interest rate will depend on:
- The 'loan to value' of your borrowing – your interest rate will generally be lower if you have a lot of equity in your home
- Your credit rating – your interest rate will generally be lower if you have a good credit rating
- Your employment history – your interest rate will generally be lower if you have a stable employment history and you are able to provide a long track record of earnings
Are there any other fees and charges?
Some lenders may charge an arrangement fee to set up your secured loan for you. There may also be valuation and legal fees incurred as part of the process, but lenders will often meet these costs on your behalf.
What can I use the money for?
Anything. You can normally use the money for almost any purpose. Many people use a homeowner loan to pay for home improvements such as a new kitchen or bathroom or for an extension or conservatory. Others consolidate other high interest payments into one manageable, affordable monthly repayment.
You can also use the cash for a new car, a holiday, your wedding, to send your children to University or almost anything else you can think of.
Wherever possible the funds are yours to spend as you wish.
Can I take it to consolidate other debts?
Yes. If you have lots of unsecured debts such as personal loans or credit cards, it can be tough to manage multiple payments to these creditors on a monthly basis. And, you may be paying high rates of interest on certain types of unsecured borrowing.
When you take out a secured homeowner loan you can borrow a sum of money sufficient to repay some or all of your other debts. Instead of making multiple payments to high interest borrowing you can make one simple, affordable monthly repayment to your homeowner loan. It can reduce your payments and make your finances easier to manage.
Bear in mind that by securing previously unsecured debts against your property, you may be putting your home at risk if you fail to keep up repayments.
Can I use it for home improvements?
Yes. It can be the ideal way to pay for home improvements.
You may be considering some simple decoration to your home or you want to refit your bathroom or kitchen. Perhaps you are considering building an extension or a conservatory? Or, maybe you want to undertake some significant repair work to your home such as new windows or a new roof.
A homeowner loan is a great way for you to borrow the cash you need to fund your home improvements.
What if I need to borrow more money in the future?
If you take out a homeowner loan now and find you need more money in the future you will normally have two options:
- Extend the homeowner loan you already have – as long as you have sufficient equity in your property and you meet the other criteria
- Take out another homeowner loan
Can I repay it early?
Yes. If you want to settle your loan early, you can obtain a settlement figure from your lender. The exact amount that you will have to repay will be calculated in accordance with your credit agreement and the terms and conditions of your loan.
What happens if I move home?
You will not be prevented from moving home just because you have a homeowner loan. If you are considering moving home, you should speak to your lender to find out how to proceed.
Some lenders may require you to pay off your secured loan from the proceeds of the sale of your home. You can then often apply for a new homeowner loan based on the value of the new property.
Other lenders will allow you to transfer the secured loan onto your new home. Much will depend on the value of the new property and the equity that you will have.
Can I protect my secured loan against illness or unemployment?
Yes. Payment protection insurance is available which provides cover should you be unable to make your secured loan repayments in the event of accident, sickness or unemployment.
This insurance will cost an additional amount per month and so you should be sure that you need it before you sign up. You should also check the policy carefully to ensure there are no exclusions which would affect your ability to make a claim.
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