When it comes to borrowing, it’s easy to get bogged down with all the different types of loan out there.
But it’s important that when you borrow, you know that the loan you’re taking out is the right one for your needs. That’s why we’re setting out to make things simple and bust the complicated loan jargon.
Know your loan type
As the name suggests, you have to be a homeowner to access this type of loan.
It’s also important to mention at this point that a secured loanis another name for a homeowner loan. We understand this is a little bit confusing, but a good way to remember it is to think that the loan is secured against your home.
Using your property as ‘security’ means that, in a sense, the loan is tied to your home by the lender. This reassures the lender that if you can’t repay the loan, your home (or part of it) can be sold to raise the money you owe. For this reason, it’s really important you only take out a secured loan if you’re confident you can afford the repayments.
Just whether you’re able to get a homeowner loan depends on a number of factors, but mainly how much equity you have in your property.
Equity is the difference between the value of your home in the current market, and the mortgage you have left to pay off. Put simply, the more equity you have in your property, the more you’ll be able to borrow against it.
Of course, just how much you should borrow depends on what you’re using the money for – don’t be tempted to borrow more than you need just because you can!
To help you work out how much equity you have, you can check the value of your home by looking at the Land Registry for similar properties recently sold in your area. Alternatively, you can use a property website to help, such as Rightmove’s house price calculator.
Communicate and be open
Like with any loan, you’ll make a repayment every month until you’ve paid back what you borrowed (as well as any interest). These repayments will be set by the lender, and are dependent on how much you borrow, as well as the length of time you agree to pay back the loan and any interest added on.
If at any point you think you might struggle to make one of your payments, it’s always best to speak openly with your lender and let them know. Your lender should want to help you if you’re having difficulty and most would rather come to a temporary agreement if you think you may fall behind.
Repossessing your home is always the last resort, but you must keep in touch with your lender to try to make sure it never reaches this point. If there are any changes to your financial situation, make sure to let them know.
What can a homeowner loan be used for?
You can essentially use a secured loan for anything you choose. The amount you’re able to borrow reflects the amount of equity available in your home. However, because the loan is secured to your property, it’s a good idea to have a plan in place for what you want to spend the money on.
The reasons to take out a homeowner loan will vary from person to person, but they tend to be for larger purchases. Some of the most common reasons to take out a loan like this are to pay for home extensions, buy a new car or to consolidate debts.
Smart budgeting, keeping up repayments
If your credit history has been weakened by your previous experiences with borrowing, a homeowner loan may be a better option for you than an unsecured loan. This is because your credit history plays an important part in your application for unsecured lending like a personal loan, and if yours is blemished this could stand against you.
Even though your credit history is less important with a homeowner loan, you still need to balance all your monthly repayments against your income and outgoings to make sure you have enough to cover the loan repayments. If you’ve struggled with credit in the past, consider whether you’re now comfortable to borrow on such a large scale – if you have doubts over your financial situation, it’s best to hold off for now.
Ocean provides homeowner loans from £10,000 to £250,000 by comparing deals from various lenders to find the one that suits your needs. With our new Smart Search feature, you can also find out whether you’re eligible for a secured loan before you apply. Find out whether you’re likely to be accepted by heading to our Smart Search feature.
Disclaimer: All information and links are correct at the time of publishing.