How does a homeowner loan work?

A homeowner loan is secured to your property. You can usually borrow more money, at a lower interest rate, compared to an unsecured loan. But if you stop making your monthly repayments, the lender could repossess your house (usually only as a last resort).

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Secured loans: the basics

You can use a secured loan can for almost anything you like (just not for gambling or anything illegal). For example, you could use a loan for:

  • Home improvements (like a new kitchen or an extension)
  • Debt consolidation (merging debts so you only make one monthly repayment)

A homeowner loan may be suitable if you want to spread the repayments over a long period. This could reduce your monthly repayments and make them more manageable. Bear in mind though, if you do this you may end up paying more interest overall.

Applying for secured loans vs personal loans

Another advantage of a homeowner loan is that you don’t need a perfect credit history to get approved. Of course, every lender has their own eligibility criteria. But typically, you may be able to get more favourable rates on a secured loan than a personal loan - even if your credit history isn’t strong. 

Secured lenders tend to be more confident in lending larger sums of money with lower interest rates because they have your property as security. 

Unsecured lenders, on the other hand, will usually pay closer attention to your credit history. They will check how well you’ve managed your money in the past. If you’ve struggled, you may find it more difficult to get approved with competitive interest rates.

Homeowner loans and mortgages

Your mortgage takes priority over a homeowner loan. So if your house is sold, your mortgage lender will be paid first. Then your secured lender will take what they’re owed from the sale proceeds. Any remaining funds (if there are any) will go to you.

If there isn’t enough money left over to clear your homeowner loan in full, the lender can chase you for the outstanding balance.

How much can I borrow?

The amount you can borrow will depend on several factors, including:

  • Your income
  • Your credit history
  • Your age (some lenders have age restrictions)
  • The current market value of your property
  • How much equity you have in your home (i.e. how much you own outright)

Your equity will go up if you chip away at your mortgage and your house value increases.

To work out how much equity you have, deduct your mortgage balance from the current value of your property. The more equity you have in your home, the lower your loan-to-value ratio will be. Lenders will see you as a lower risk. So they may be more likely to offer you larger sums with competitive interest rates.

Your income and outgoings will also be considered when you apply for a homeowner loan. Lenders want to see that you have enough coming in to cover your loan repayments – on top of your other outgoings.

Make sure you shop around to find the best deal to suit you before you go ahead. By using an eligibility calculator, you can find out how likely you are to be approved for a homeowner loan before you apply. It won’t affect your credit score.

Homeowner loans from £10,000 to £250,000

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Homeowner loans are secured against your property.