A homeowner loan is generally a secured loan or second mortgage. It is a loan that you could take out if you are a homeowner and it will be secured against the value of your property. They can offer more favourable rates than other forms of credit, but this is largely because the lender will be able to repossess your property to recoup the funds if you do not keep up the repayments.
These loans are often used for home improvements or larger purchases that you may not have the savings or credit facilities to pay for. Again, they are only available if you are a homeowner.
There are many lenders who will be able to offer you a homeowner loan so carrying out a homeowner loan comparison online or with a financial advisor is imperative in making sure that you get the right loan for your needs.
There are many different forms of credit that may be available to you. When you compare homeowner loans it is a good idea to consider these options too to see which one is right for you.
Credit Card – Credit cards are great if you only want to borrow a small amount of money and you want flexible repayments. However, they can be expensive if you want to borrow a larger amount of money or borrow over a longer term. Homeowner loans can often offer better interest rates.
Unsecured Loan – An unsecured loan will usually offer you between £1,000 and £25,000. You will not usually lose your home if you fail to keep up the repayments on an unsecured loan, but the interest rate will often be higher than a secured loan. A homeowner loan will usually offer you a larger loan amount which is great if you want to make an expensive purchase or carry out major home improvements.
Mortgage – A remortgage could be a good option if you want to make one monthly repayment and benefit from a low interest rate. However, it could be expensive to get out of your existing mortgage deal so check this before you consider a remortgage option. You may want to keep these payments separate anyway in which case a homeowner loan is a good idea.
There are a few key factors that you will want to consider when you compare homeowner loans:
Interest Rate – This is how much you will be charged in interest for your homeowner loan. This affects your monthly repayment and the total cost of borrowing.
Set Up Fees – It is also worth looking at the set-up costs for the loan. Some lenders will charge you more than others to set up a homeowner loan. The monthly payments might be lower but if the loan costs a lot more to set up then you could find yourself paying more for it overall. It is important to look at the overall cost in a homeowner loans comparison rather than just your monthly payment.
Type of Repayment – You will usually be offered the choice between a fixed rate and a variable rate homeowner loan. A fixed rate means that you pay a set rate for a period of time, typically 2-5 years. This means that you will know exactly what is going out every month but if interest rates fall, you will not see the benefit as your payment will stay the same. A variable rate loan means that if interest rates fall, your monthly payment will fall too. However, if interest rates rise your monthly payment will increase which wouldn’t happen if you had taken a fixed rate.
Flexibility – Some homeowner loans will give you the option to make overpayments or even pay it off earlier than planned. These are important considerations if you expect to have additional funds in the future to make payments or if you want to consolidate your mortgage and homeowner loan at a later date. Think about how much flexibility you need when performing a homeowner loans comparison.
When you apply for a homeowner loan, a potential lender will consider the risk they are taking in lending you the money. Here are some of the things they will consider:
Income – This is important as a lender will want to consider whether your income is sufficient for you to make the monthly repayments.
Other Debts – If you have a high level of unsecured debt and you are not looking to consolidate it by taking out a homeowner loan then the lender may decide you are overburdened and turn you down for your loan even if you have kept up all of your repayments.
Equity – They will look at how much equity you have in your home and how much you will have once you have taken out their loan. This would show them the likelihood of getting their money back if you failed to make the repayments and they had to repossess your home.
Credit Rating – This will show the lender whether you have been able to manage your debt in the past. If you have always made your payments on other credit commitments on time this can improve your credit rating. However, if you have had a history of missed payments, they might turn you down.
What do you want the loan for – It is often in a lender’s best interest to loan you money for home improvements as this will increase the equity in your home. They will often ask what you are going to do with the money in order to assess how much risk they are taking in lending to you.
You will need to keep up the monthly payments on your homeowner loan once you have taken it out. Failure to do so could lead to your home being repossessed. Always make sure that you are confident you can make the monthly repayments before you take on any debt that is secured against your home.