Homeowner loans explained
Using your property as ‘security’ means that the loan is tied to your home by the lender. In theory, the more you’ve paid off your mortgage, and the higher your house value, the more you’ll be able to borrow.
This reassures the lender that if you can’t repay the loan, your home can be sold to raise the money you owe. (However, this is usually a last resort).
For this reason, it’s important you only take out a homeowner loan if you’re confident you can afford the repayments.
What can a homeowner loan be used for?
You can use a homeowner loan for anything you choose (as long as it’s not used for gambling or anything illegal). They tend to be for larger purchases.
Some of the most common reasons for getting one include home improvements and debt consolidation (where you merge your debts).
Tip: Always check if you are going to be charged early charges fees for repaying debts early, before consolidating them.
Whether you’re eligible depends on a number of factors, (which can vary depending on the lender). For example, they may look at:
- Your income and outgoings
- Your credit history
- What your property is worth
- How much equity you have in it
The more equity you have in your property, the more you’ll be able to borrow against it. Equity is the difference between:
- The current value of your home
- Your outstanding mortgage balance
For example, if your home is worth £250,000 and you have £200,000 left to pay on your mortgage, you have £50,000 of equity.
Keep your lender in the loop if there are issues
As with any loan, you make one repayment each month until you’ve paid it back in full. Your repayments will be set by the lender. They are dependent on how much you borrow, as well as the length of time you agree to pay back the loan, plus interest.
If you think you might struggle to make one of your payments, it’s important to let your lender know as soon as possible. They should be able to help you if you’re in financial difficulty.
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 that point. If there are any changes to your financial situation, make sure to update them as soon as possible.
Smart budgeting and keeping up loan repayments
Even though it may be easier to get a secured loan compared to a personal loan, you still need to make sure the repayments are affordable before you commit.
If you’ve struggled with credit in the past, consider whether you’re now comfortable to borrow on such a large scale. Don’t be tempted to borrow more than you need to just because you can. Otherwise, you could overstretch yourself financially. The bigger the loan is and the longer you take it out for, the more interest you’ll pay overall.
If you need to talk it through, you can get in touch with a financial advisor to discuss whether it’s the best option for you right now.
Secured Loans from £10,000 to £100,000
- Check if you’re eligible before you apply
- We compare 100s of secured loans
- Getting a secured loan quote won’t affect your credit score
We have found loans with rates from 2.4% to 27% APRC which has allowed us to help customers with a range of credit profiles.