A homeowner loan is like any other loan, allowing you to borrow money from a financial institution but there is a catch with this type of loan. You are borrowing money against your house, which in simple terms mean, that if you fail to make the repayments, your house will be repossessed.
A homeowner loan is also widely known as a secured loan. Your home acts as a security against the money.
WHY TAKE OUT A HOMEOWNER LOAN?
In certain situations, when a person is unable to secure a normal loan because he or she has bad credit, then they have the option to take out a homeowner loan (if they own a house). This loan is easier to secure for people with a fair credit history or a low credit score. Your house acts as security against the money you borrowed.
If you are already considering taking out a homeowner loan, you need to be aware of the following
- Homeowner loans are only available for higher amounts. If you want to borrow money under £15000, you should consider other options.
- They have a lower interest rate than other loans, but the risk is always high.
- Your house will be repossessed if you do not keep up with the payments.
- You are likely to be accepted for a homeowner loan if you have bad credit score.
- These loans are easier to secure if you are borrowing a higher amount for a longer time such as 10-25 years.
Homeowner loans are also known as secured loans. Not all the secured loans are same, and they depend on individual circumstances and credit situation. So the terms and conditions for each individual will be different.
FINDING THE RIGHT HOMEOWNER LOAN
These loans are like other loans and are widely available just like credit cards. It is important to shop around and look for the cheapest option available to you. This means that you should give preference to a secured loan which is offering you the lowest interest rate and flexible payment terms. A secured loan which has very strict terms and conditions and there is a lot of fine print, stay way clear of them.
The best way to find the perfect homeowner loan is to use comparison websites.
HOMEOWNER LOAN VS UNSECURED LOANS
Unsecured loans are the general loans that people borrow from their banks or other financial institutions. These can be credit cards, personal loan, car finance, etc.
The main difference between a homeowner loan and unsecured loan is that the interest rate in lower, the time period is longer and lenders are less fussy with homeowner loans. The reason is that they have security that their money will be returned by selling off your house if you don’t keep up with the payments.
In comparison, unsecured loans are harder to get; the lenders can be really fussy and charge you a ridiculous amount of interest (I have seen 1500 APR for borrowing £1000). The time period is usually from 12 months to 60 months. And you need to have a decent credit score to get the loan approved in the first place.
There are few things to bear in mind when you are ready to take out a homeowner loan. It is advisable to check if there are any fees involved especially if they are charging an early repayment fee. Also, check for the eligibility criteria and if any payment breaks or deferment period are allowed in the contract. Sometimes in the case of an emergency if the loan agreement allows payment breaks then it can make a huge difference. Loans which do not offer a deferment period have strict rules, and in case of unforeseen circumstances, one might find themselves in a difficult situation.
Always keep the risk of repossession of your home in your mind before you decide to take out a secured loan and calculate your options wisely. Also, ensure that the interest rate is fixed throughout the period of your loan and is not changing after few years.
Borrowing money should always be done responsibly, taking into account your financial situation and personal circumstances. And if you are still unsure, you can always ask for help from your local advisor.