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What are Homeowner Loans?

Homeowner loans, also known as secured loans, equity loans, second mortgages or second charge mortgages, allow you can borrow large sums of money against the value of your property.

This type of loan can provide you with access to substantial funds, but it’s important to remember that your lender is protected because the loan is secured against the value of your home.

This means if you struggle with your repayments, you could be at risk of your lender repossessing your home to cover the outstanding debt.

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How do Homeowner Loans Work?

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(1) To apply for a homeowner loan, you need to own all or part of your property.

The amount you can borrow is determined by your home equity, which is calculated using your loan-to-value ratio.

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(2) The amount a lender is willing to offer you will also depend on several other factors, including: credit score, affordability, first mortgage, debts and household outgoings, as well as your personal circumstances such as employment status.

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(3) After agreeing terms with a lender, your loan is typically repaid monthly over the duration of the specified loan term.

Loan terms can last anywhere between 1 to 35 years.

Common Reasons to Apply for a Homeowner Loan

If you’re in need of a substantial sum, usually in excess of £10,000, a homeowner loan might be a good option for you to explore.

Homeowner loans are commonly used to finance significant projects or lifetime events such as:

  • Home improvements and major renovations
  • Big, one-time expenses like weddings
  • Deposits on second or third properties

But Homeowner Loans can only be a financial solution to consider when:

  • You have a less-than-perfect credit history
  • You encounter difficulties being accepted for a secured loan
  • You prefer an extended repayment period on your loan

Sums below £10,000 are often more effectively managed through a credit card or what’s known as an unsecured loan. These are a good option if you have a strong credit history and need to borrow smaller amounts over a shorter period.

PROS OF HOMEOWNER LOANS

Homeowner loans offer some significant advantages compared to other types of unsecured loans.

One of main positives is the lower interest rates, making your repayments more manageable.
Homeowner loans also come with longer loan terms, allowing you more flexibility in structuring your repayments, and they can provide access to larger loan amounts when you need a significant sum.

Being accepted for a homeowner loans is often smoother compared to unsecured loans because of the lender’s added security in the form of your home as collateral.

CONSIDERATIONS BEFORE APPLYING

Before applying for a homeowner loan, there are some important considerations to keep in mind:

    • Assessing Your Home Equity: Take a close look at the equity you currently have in your home. If it’s not sufficient, you might need to wait until you’ve built up more equity or be prepared to borrow a smaller amount than you initially wanted.

 

    • Budgeting and Financial Planning: Since homeowner loans typically have longer repayment terms, you should ensure you can comfortably manage the repayments well into the future. Keep in mind that secured loans are subject to affordability and financial checks, so tidy up your finances, cancel unwanted subscriptions, and make sure all your payments are up to date before applying.

 

    • Checking Your Credit Score: It’s wise to check your credit score using a free tool like Experian before applying. Rejected applications can negatively impact your credit file, so be prepared by checking before you apply.

 

  • Home Repossession Risk: Never forget that if you fall significantly behind on your repayments, your home could be at risk of repossession.

If you have concerns, consider discussing your options with an qualified advisor or explore unsecured loans as an alternative. Your home’s safety is paramount.

HOW TO APPLY FOR A HOMEOWNER LOAN

If you’re thinking about taking out a homeowner loan, you might be worried about the stress and complexity that comes with it.

Having a qualified broker by your side can make the world of difference. Their guidance can be hugely valuable, simplifying the journey from start to finish and ensuring that you make informed decisions every step of the process.

If you’re considering a second mortgage, don’t hesitate to seek the expertise of a trusted broker to ease the stress and complexities of securing a homeowner loan.

Fill out the form below to begin the process now.

Step to apply via Your Mortgage People:

    1. Use the enquiry form below to get your journey started

 

    1. Our advisors will contact you to discuss the process and begin finding you the best deals

 

    1. Once we have identified a great solution, we help you with everything you need for your application, and submit it to the lender

 

    1. The lender will confirm the offer and your new loan will begin in accordance with the terms we have agreed

 

  1. Funds are released by the lender at the amount agreed in the loan terms, with you repaying the amount with interest as part of the loan

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INTEREST RATES AND LOAN REPAYMENTS

Interest rates: When it comes to homeowner loans, interest rates can vary widely. The interest rate you receive is determined by several factors in your application. Lenders consider elements like your equity, the amount you’re borrowing, the duration of the loan, and your credit score to calculate a personalised interest rate.This means there’s no “typical” rate, and the variability allows lenders to adjust the rate to your specific financial situation.

Loan Repayments:If you’ve taken out a homeowner loan and find yourself with some extra cash during your repayment period, we think it’s worth considering paying off your loan early. While these loans offer access to significant amounts of money, the sooner you start repaying, the better.

Keep an eye out for any early repayment charges, but know that settling your loan ahead of schedule could result in substantial savingsover the course of your original repayment period.

So, if the opportunity arises, it might be a smart move to chip away at that loan sooner rather than later.

HOMEOWNER LOANS VS OTHER FINANCING OPTIONS

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Remortgaging:

If you’re coming to the end of your mortgage deal, you might be able to switch to a new lender and borrow the extra funds you need. This is often the cheapest way to raise money.

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Debt Consolidation:

If you have accumulated debt and are struggling to meet the repayments, a Debt Consolidation Mortgage arranged through Your Mortgage People might be the answer.

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Equity Release

If you’re over 55, Equity release products give you a chance to unlock the money in your home with no monthly repayments whilst you continue to live there.

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FIND OUT MORE

If you want to know more, why not check our guide to mortgage terms or FAQs section. We cover everything you need to know, explaining mortgage terms and commonly asked questions.