If you’re a homeowner, you have more borrowing options. Why, you ask? Well, because you own something of significant value, you have the option of securing a loan against it. This allows you to borrow much larger amounts spread out over longer terms. Yet, as with all borrowing, there are some considerations you need to take note of. To get you up to speed, we’re answering the question: “What is a homeowner loan?” and running through the pros and cons of this type of borrowing.
What is a homeowner loan?
A homeowner loan (sometimes also called a secured loan or second-charge mortgage) is a loan that’s secured against your property. This means that in the event of you not repaying what you owe, as a last resort the lender could take the asset the loan is secured against to recover their costs.
When a loan is secured, it adds an extra level of security for the lender. This means that lenders are willing to lend out bigger sums of money and let borrowers repay them over longer periods of time. It also means that this type of loan can still be an option if you’ve got a few hiccups in your credit history, or that you may be eligible for a better rate than with a personal loan.
How does a homeowner loan work?
With a homeowner loan, you borrow a fixed amount from a lender, then pay it back in monthly instalments plus interest over the term of your loan.
You don’t need to remortgage to take out a homeowner loan. It simply sits behind your first mortgage once you set it up. Before you take out a homeowner loan, you’ll usually need to speak to a qualified adviser so they can make sure it’s right for you.
How much can I borrow with a homeowner loan?
You can potentially borrow from £10,000 up to £2,000,000 spread over repayment terms of 1 to 30 years.
What can a homeowner loan be used for?
A homeowner loan can be used for any legal purpose. Popular uses of a homeowner loan include:
- Debt consolidation
- Making home improvements
- Purchasing freehold
- Buying additional property
What are the benefits of a homeowner loan?
There are lots of benefits to homeowner loans compared to personal loans. These include:
- You can borrow larger amounts
- You can spread the cost over longer terms
- You could get a better rate (reducing your monthly repayments)
- You can be eligible even with a poor credit history
- You can get advice on which loan is best for you
- You’ll be told if a homeowner loan isn’t suitable for you
- Repaying your homeowner loan could improve your credit score
What do I need to consider with a homeowner loan?
As with all types of borrowing, there are some key considerations to think about:
- Homeowner loans take longer to arrange than with a personal loan – often around 10 days
- Your home could be taken away if you stop making your loan repayments
- Missing repayments can have a negative effect on your credit score
Who is eligible for a homeowner loan?
To be eligible for a homeowner loan, you’ll need to be:
- Over 18 years old
- A homeowner
Although all lenders’ criteria is different, you will need to have enough equity in your home to secure the loan against. That said, homeowner loans can still be an option for you if your equity is fairly low as there are high LTVs (loan-to-value ratios) available.
You could also be eligible if you have a low credit score. Although, the better your credit score, the better the APR you’re likely to be offered.
Want to quickly check if you’re eligible for a homeowner loan? View your homeowner loan options online now without harming your credit score.
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Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.