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If you own your home (and have a mortgage) then a homeowner loan could:
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There are a number of reasons why a homeowner loan (sometimes called a secured loan) could be of interest to you:
Compared to a remortgage homeowner loans have a number of advantages:
Homeowner loans have a number of advantages over an unsecured personal loan:
1 this is the value of your home over and above the amount of your mortgage outstanding. For instance your home may be worth £250,000 and your remaining mortgage is £100,000. This means the equity in your home is £150,000.
When you borrow using a homeowner loan the loan is secured against your property. This means that should you have difficulties repaying the loan the lender can, as a worst case, sell your property to recover the amount owing. So this is not a decision to take lightly. But this security does reassure the lender and does mean you may be able to borrow in situations where an unsecured loan would not be possible.
We have access to lenders who in principle are able to lend very large sums of money. But the amount you can actually borrow depends on a number of criteria:
See an example of how these "rules" are applied.
A homeowner loan is a loan where the lender requires an asset as security. In this case the security is your property. So, to get one of these loans you need to own your home, hence the name. They are also called secured loans. Compared to an usecured loan:
These are the general critieria you need to satisfy to be able to get a homeowner loan:
You will also get the best rates if you ensure your credit history is as correct as possible. There may be issues that you can fix quickly.
Homeowner loans are known as "second charge" loans. They can only be used if there is already a "first charge" loan on the property i.e. a mortgage. If you own your property outright then you cannot obtain a homeowner loan. In this situation the way to access the value of your property is through a remortgage.
LTV defines the maximum lending (mortgages + secured loans) allowed against a property's market value. It is the ratio of maximum lending value to the property value. e.g. if the LTV is 50% and the property value is £200,000 then the maximum lending permitted is £100,000
Lenders have different homeowner loan products which have different maximum LTVs. As the maximum LTV increases they tend to raise the interest rate on those loans. This is because they judge that the riskiness of the loan to have increased. They have to consider their risk exposure should property prices fall.
Here is an example of how LTV, mortgage values and a lender's attitude to risk come together:
To manage their risk a lender could set their LTV on a loan to 75%. If your home is worth £250,000 then the maximum total lending against the property (first + second charge loans) would be £187,500. If you already have a mortgage of, say, £120,000 then this is deducted from the £187,500 giving a balance of £67,500 available to play with.
But the lender may not offer you £67,500 even if the product's terms might suggest it. The lender must assess the affordability of loan repayments, and also judge your credit risk profile by taking into account your credit history. This is all part of their responsible lending policy. All lenders have a duty to lend responsibly.
The path to your homeowner loan is as follows:
There is more paperwork required to set up a homeowner loan than a personal loan. The lender needs to check property ownership, get the property valued etc and this takes time. While lenders will always work as fast as they can, and have speeded up the process in recent years, you should expect a period of 3-5 weeks before you will receive your loan.
The average unsecured personal debt in the UK stands at around £3200 per adult. That's the average with many people owing considerably more than that! Unsecured personal debt includes credit cards, payday loans, car finance, overdrafts, and other unsecured loans. Much of this type of debt is very expensive to service - i.e. high monthly interest charges.
Do you have expensive unsecured debt? If you are living in a home you own and it is worth more than any mortgage you have on it then you may be able to consolidate the debt. This means swapping the expensive debt for a cheaper homeowner loan. The interest rate should be lower and you can, with care, potentially extend the repayment period to reduce your monthly costs even further. But keep in mind that you would be putting your home at risk if you failed to keep up the repayments on that loan.
While there can be significant benefits (see above) from electing to use a homeowner loan for your finance the main thing to be aware of is that you are securing your loan on your property. This means that if you are unable to meet your repayment obligations to the lender in the worst case you could lose your home.
The other thing to be aware of is that if you have a homeowner loan and then want to move house things may be more complicated as a result.
If you have sufficient equity in your home, have a reliable income and can afford the repayments then a previous credit problem should not necessarily prevent you from getting a homeowner loan. Because this type of loan is secured on your property the lender has already offset much of the risk. We also have access to lenders who offer special plans.
However, as with all credit the better your credit rating the better the deals you are likely to be offered. So it makes sense to make sure that your credit file is as correct as possible.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOAN SECURED ON IT. IF YOU ARE THINKING OF CONSOLIDATING EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY
* Actual rate will depend on personal circumstances and credit assessments. To find out what rate you can get apply below. The current Representative APRC is 9.1%, including lender and broker fees.
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