Guest Post: A Homeowner loan breakdown

October 20, 2014 Off By Laura TMOT
Taking out a homeowner loan can be the best way of borrowing money if you own a property and are finding it difficult to get an unsecured loan. It is essentially a debt which is secured against your home. It is only available to those who have a certain amount of equity in their property, which means that their home is worth more than the amount they have still to pay on their mortgage.

Homeowner loans, or secured loans as they are also known, are different to unsecured loans because the lender is often less worried about the borrower’s credit history. So if you have a poor credit rating and have been refused credit in the past, you may still be able to borrow money. The loan will be secured against your home. They are also sometimes called second-charge loans because they are, in fact, a second charge against your property. The first charge is, of course, your mortgage.

If you think a homeowner loan is the best option for you, the very first thing to do is to check that you can comfortably afford the repayments from your income. Remember that a secured loan is often the best choice if you have a less than perfect credit history and so are finding it difficult to obtain credit. They should not be considered if you need to borrow money and might not be able to afford the repayments because your home will then be at risk.

The amount you can borrow will vary from lender to lender, but typically is up to £15,000. How much you are able to borrow will also depend on how much equity you have in your property.

How Long Can the Repayment Period Be?

Repayments can often be made over of a period of up to 180 months, which is 15 years. The longer the period you take to repay, the lower the monthly repayments will be, although the loan will cost you more in the long run. However, a long period to repay can be ideal for those who cannot afford to pay higher monthly repayments.

What Are the Fees?

As with all types of credit, there will be fees involved. These will also vary from lender to lender, so always ask how much the fees will be when you are making enquiries. Usually there will be an initial set-up fee, which may be around £500 or more, and an acceptance fee, which could be £600 or more. You are unlikely to have to pay these fees upfront, but you will have them added to the total amount of the loan, repayable over the loan period that you and your lender have chosen.

Can You Pay the Loan Back Sooner Than Agreed?

Many lenders will not allow you to do this. However, some will and so it is always worth checking this out first. If you find that you can repay the loan early, then it is always worth doing so because you will then pay less in interest. Not all lenders will let you overpay your monthly payments either or make a lump-sum payment — both ways of cutting the amount of interest you pay — so it is important to find out if you will have the option of doing this before you commit to the loan.

Can You Borrow Money without Any Equity in Your Property?

Usually no, but there are lenders who will still consider you. Negative equity can be a problem if you bought your house when property prices were at their peak and they have since fallen. Whether or not the lender chooses to lend to you will depend on their assessment of your ability to repay the loan and whether or not they think property values may soon recover in your area. Always try to select a lender who listens to you rather than basing a decision merely on your credit rating or credit history. Circumstances change, and the best lenders know and appreciate that.

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