Homeowner loans

Learn about Homeowner Loans

All loans have certain things in common, such as monthly repayments and interest rates. However, while those elements don't change, the type of loan can vary widely. For example, secured loans are different from unsecured ones. Secured loans won't be available to everyone - only to the homeowner.

To be considered for one of these loans, you must be a homeowner and have enough equity in your home. Without equity, and without your own property, you would need to look at a personal loan (unsecured) instead.

We look at the ins and outs of homeowner loans, so you can see whether these might supply you with a way to get the homeowner loan amount you are looking for.

What is a homeowner loan?

A homeowner loan is a type of secured loan. Secured loans - and therefore a homeowner loan - are only available to people who own their own homes, as the loans are always secured to their property. This explains why you must have equity in your property, as you would not be considered for loans like these unless you have that equity.

You can only get a homeowner loan worth up to the amount of equity present. You cannot borrow more than this. That said, it would be a smart idea to borrow less than that if possible when getting a homeowner loan. It doesn't make sense - financially or otherwise - to borrow any more than is really necessary.

You should also think carefully before securing a homeowner loan against your home in this way. Any debts against your home that you have may lead to it being repossessed if you don't keep up repayments. However, if you would like to borrow money for a period of time, this may be worth thinking about.

How can you use a homeowner loan?

Take a look at some of the reasons people decide to choose repayments on homeowner loans rather than a personal loan that is unsecured. A homeowner loan might be a more practical solution than you'd think. We cover some of the more common reasons people may look at these loans.

You can borrow for home improvements

Unsecured loans only go so far. If you wish to borrow a significant sum to add an extension, rebuild a bathroom or a kitchen, or renovate the entire property, a secured loan might be the better option. Many people decide to get a homeowner loan at a reasonable interest rate for this reason alone.

You can consolidate existing debt

Since interest rates are typically better for homeowner loans, you may use one to consolidate existing debt elsewhere. A good example would be credit cards where the need to pay back huge sums every month is becoming difficult. Homeowner loans offer lower interest potential, with debt secured on your property. You can then ditch the credit cards and begin paying back the monthly amount due on the secured loan instead.

If you consider this route, getting rid of your credit cards is wise. You don't want to get back into further debt on those when you have a loan to manage as well. Take the opportunity to assess your finances. Look at income and outgoings. See where you can save and manage your money better.

You might use it to build a better credit score

If your credit score is lower than you would like, you might think about getting homeowner loans to help you improve it. The idea is to borrow the smallest amount you can and to make your payments every month. While you will pay interest on the amount, you will build a better credit history. Be aware that your home could still be at risk though.

What are the advantages of home owner loans UK?

If you've got the chance to become a secured homeowner, it is worth thinking about the possible advantages of taking out a secured loan.

Interest rates could be lower

Comparing secured loans with unsecured loans often highlights a difference in the average interest rates. Unsecured loans mean that you do not need to put up any collateral for the loan. With secured loans, you are using your status as a homeowner to provide a guarantee that the lender will get their money back.

Put simply, the lender knows that if you do not keep up repayments, your home might be repossessed to pay off the loan, so they would receive their money back. This guarantee means that the lender often offers lower interest rates.

Greater flexibility in your loan amount

If you want a loan without any security to back it up, there is a chance you may be offered less. Of course, various factors contribute to your ability to be offered a loan. Your credit score, any bad credit history, and other personal circumstances could influence any offer a lender could make.

However, you might notice there is more scope to borrow a greater amount when opting for homeowner loans instead of other unsecured loans. A home owner loan still requires you to have equity in the property, but the loan typically has a higher ceiling.

Things to consider when looking at a homeowner loan

Long before you apply for a homeowner loan, you must consider various factors that could influence whether you go ahead and place this second charge on your home. Securing other debts on your property means you have more debt in your name. Don't overstretch yourself. Work out all your figures and use a calculator to assess your financial situation if it helps. You can put your home at risk if you fail to pay it back.

Here are some main pointers to think about if you are considering seeking a lump sum via a homeowner loan.

Can you afford the monthly repayments?

Homeowner loans can be advertised at the lender s standard variable rate or a fixed rate, depending on the terms of the loans. Homeowner loans should give you the total amount payable. You must make sure you could easily meet those repayments along with making the usual repayments on your mortgage. You also need to consider all other monthly outgoings.

What is the total amount you will pay back?

The total sum you pay back includes the amount you borrow plus interest at the rate you are offered. If you find a home loan (whether via a credit broker or direct from a lender), you should compare it to others on the market. The length of the loan, the cost, and the monthly repayments all affect the outcome.

You will undergo a credit check

Lenders are going to check your credit file when you submit an application with them. This is true for all kinds of loans, including homeowner loans. Securing your loan against your house will not mean you can avoid undergoing a credit check.

How long is the loan term?

Homeowner loans usually last for at least 12 months. However, you can find homeowner loans for a range of periods, with some lasting up to 20 years, 25, or 30 years.

What is the value of your home?

You need to know the value of your property, along with the amount of equity in your home. The difference is the amount you could borrow - at most.

For example, let's say your home is worth £300,000 and you want to borrow £50,000. You know there is £40,000 equity in the property, so in this case, the most you could borrow would be £40,000.

What is the loan to value (LTV) percentage?

This sounds technical, but it's quite easy to understand. The loan-to-value percentage is the amount someone will lend via a homeowner loan when compared to the equity in your property. So, let's assume you own your property outright. It's worth £500,000. If a lender says they are prepared to lend you a homeowner loan for 75% LTV, this means they'll lend up to £375,000.

Remember this is the maximum amount for the loan. In many cases, people borrow a lot less than this. However, it is another piece of information you can use when working out the possibilities before you apply for a homeowner loan.

Do you know the APRC representative rate?

This means the Annual Percentage Rate of Charge. It's easier to work out the overall cost of any homeowner loans when you have this percentage. Rather than just focusing on the interest rate, it considers any fees you might pay if you took out a loan. It assumes you would be on the same repayment plan, without changes, for the entire length of the loan.

It supplies a starting point, but you should remember that variable rates are just that - variable. You can also switch to a different and cheaper deal at some stage. However, if all else is equal, the APRC gives you a method for comparing different deals in the early stages of comparison shopping.

Can you pay the money back early?

Early repayment may be possible, although it could incur charges. Ask about this prior to accepting homeowner loans for any amount or rate. You won't always see charges, but if the lender does impose them in this scenario, they would display the fees ahead of your application. You might see these as early redemption/repayment fees or something similar.

Make sure you compare homeowner loans

You've got two sources of loans to consider if you want to borrow in this manner. You can either borrow directly from a lender or go to a broker. In the latter case, there could be a broker fee to consider along with the overall monthly payments. These should be clearly stated in the information relating to the loan.

While a broker fee may seem like an unnecessary expense, brokers can often access other deals you wouldn't find on your own. They will only go to lenders who are authorised and regulated by the Financial Conduct Authority. Check as many lenders as you can when hunting for homeowner loans. Remember, Loanza never charges any fees.

Can you get home owner loans for bad credit?

Yes, there is a chance to find bad credit homeowner loans on the market. When looking for these home owner loans for poor credit, get plenty of information about the repayments you might need to meet each month. You will still need to know how much equity you have in your home.

Are there differences between homeowner loans bad credit and regular loans?

You may find it harder to get home owner loans; direct lenders may not have an interest in handling riskier loans like these. This narrows the market for those who may have had money issues in the past that have appeared on their financial history.

However, there are lenders in the marketplace that specialise in offering a homeowner loan to people looking for secured loans. These lenders might be easier to find via a broker, who may be able to find a lower interest rate than if you only checked the major lenders.

Whether you are looking for a deal to help free up money for home improvements or other reasons, it's wise to shop around for as much information as you can. From your consumer credit details to comparing different lenders and assessing the possible interest rate, you can get a much better idea of your situation by finding out as much as you can ahead of even considering borrowing money in this manner.

When you decide you would like to borrow money via a loan, it's easy to understand you should only go via a broker or lender authorised and regulated by the Financial Conduct Authority (FCA). From there, however, you must find out more about how much you can borrow and how much it might cost over the life of the loan.

No matter how good or bad your record is, shopping around for the best deal is vital when you look at loans. Homeowner deals are out there, and the more information you have at your fingertips, the easier it can be to work out whether you might get this loan. You should also think about whether this is the best way to access any funds you might need. This is one of several loan types, so the more you know about them, the easier it will be to compare them to find the right one. Never forget that your home may be repossessed if you don't fulfil your obligations to the lender.

We hope our comprehensive loan guide to secured debt of this type has been useful for you. Once you know all the facts relevant to your situation, you'll be able to see if you've found the right loan type for your needs. Our service is free to use and may be able to help you find a lender who offers this type of loan. If you need to borrow against your home, we could help find a trusted lender, regardless of the condition of your credit record.