However, because the loan is secured against your home, if you stop making repayments it’s your home that’ll be at risk. It’s always a last resort, but your lender does have the right to repossess your property if you stop making your loan repayments.
That’s why it’s vital you’re as sure as possible that you can afford your homeowner loan repayments each month and don’t miss them. If you do, the roof over your head could be at risk.
What about my mortgage?
A homeowner loan works in a similar way to your main mortgage, but your main mortgage takes priority. Your homeowner loan – which is also known as a second-charge mortgage – sits just behind your main mortgage.
However, although they do not take priority, the provider of your homeowner loan does not have to get permission from your mortgage provider if they decide to repossess your home. In this case, they can repossess the property and sell it. The proceeds of the sale will go first towards paying back the mortgage, then towards clearing the loan and finally, what’s left – if there is any – goes to you.
If the sale of the property only covers your mortgage - and this can happen as the lenders might put it on the market for a low price in order to get a speedy sale – and not your homeowner loan too, the lender can continue to pursue you for this. Even if the sale of your home pays off most of the loan balance, the lender is able to ask you to pay back what’s left.
But… it is a last resort
We’ve only given you the worst-case scenario so far. The thing is, the repossession of your home really is a last resort. Your lender would prefer you just made your repayments, and if you’re struggling to do so it’s important you let them know.
First things first, if money is tight you should prioritise paying your main mortgage. If you’re struggling to make your homeowner loan repayments on top of this, contact your lender as soon as possible.
As soon as you think you’re going to miss a payment towards your loan, give your lender a call. They must consider any alternative suggestion you make – although they don’t have to accept it. However, together you may be able to come up with a new payment plan that you can afford.
Paying less each month than you originally agreed to may mean it takes longer for you to pay off your loan. This could mean that you end up paying more interest than you would have originally. However, because you can afford your repayments you’re not putting your home at risk.
If you’re worried that you can no longer pay your homeowner loan at the current rate, get in touch with your lender now.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.