Before you apply for credit, it’s important to know what your options are so you can make sure you choose the right one for you.
Here, we take a look at what homeowner loans – also known as second-charge mortgages and secured loans - can offer, and some of the questions borrowers most commonly ask about them.
1) Do I have to be a homeowner?
Yes! When you take out a homeowner loan, the money you borrow is secured against your property. This provides the lender with extra security and is the reason why they can lend you a larger sum over a longer period.
If you stop making your repayments, your loan provider has the legal right to repossess your property. Once sold, the money raised from the sale would go first towards paying back your outstanding mortgage and second to clearing your homeowner loan debt. It’s therefore vital that you keep up with your repayments.
2) How much can I borrow?
Typically, you can borrow more with a homeowner loan than you would with a personal loan. This is because a homeowner loan is secured against your property and so can be repaid over a far longer period than a personal loan. Because of this, you can borrow more without the monthly repayments being unaffordable.
3) What can I spend the money on?
As with most forms of borrowing, you can spend the money you raise from a homeowner loan on anything. However, because you are using your home as security, many customers prefer to only apply for this type of loan if it’s for a big and expensive project, like an extension or loft conversion.
Homeowner loans can also be used to consolidate debt. If you have several different unsecured debts like a personal loan and credit cards, each with different repayment dates and interest rates, you can take out a homeowner loan to clear these balances. You would then make just one repayment a month with one fixed interest rate.
4) How long will I make repayments for?
As we mentioned earlier, homeowner loans are designed to be repaid over a number of years. So, while you may only have a few years or even months in which to pay back a personal loan, you could stretch out your homeowner loan repayments over a decade or more.
Spreading out your repayments over such a long time helps make them more affordable. However, it also means that you may well end up spending more in total on interest in the long run than you would if you took out an unsecured loan. Which brings us to:
5) How much will it cost?
Because they have your property as security, homeowner loan providers can offer more competitive interest rates than unsecured lenders. If you are considering consolidating your debts using a homeowner loan, you may find that the interest you pay each month drops considerably from what you were paying before.
However, to echo what we said before, because you will be making the repayments over a longer period, and so will end up making more repayments in total than you would if you’d stuck to your original unsecured loan, you could wind up paying more interest overall. But as your monthly repayments might be more manageable than they were previously, this might be a price you’re willing to pay.