Whether you need a holiday, a new car, to make home improvements, capital for a business venture or simply to consolidate existing debt, taking out a homeowner loan is an option worth considering. Homeowner loans can be used to pay off bank overdrafts, store cards, credit cards and other small loans with the added advantage of simplifying your finances and leaving you with a lower rate of interest. If you’re considering a homeowner loan, make sure you can budget for the repayments and do some research to find out which company offers the best package for you.
What Is a Homeowner Loan?
A homeowner or ‘secured’ loan is a debt borrowed against a property that you currently own or have an existing mortgage for. The rates are usually cheaper than with unsecured options because the lender knows that they are more likely to be repaid as your home is up for collateral. Repayments can be spread over a period of up to thirty years as they usually involve larger sums of money. Some lenders offer loans of up to £500,000.
Am I Eligible?
Homeowner loans are often an attractive option if you have a poor credit rating or already have existing debts. It is more likely that you will be accepted for a secured loan because the lender is taking considerably less risk. If you have negative equity, or equity of less than 25%, your chances of getting a homeowner loan may be affected.
What Are the Risks?
With any type of loan, there will be some risk involved. If you don’t repay on time or miss payments, there are legal consequences and your home may be repossessed. The investments of many people are tied up in their property, and if this is lost then they can face major financial difficulties and even bankruptcy.
The variable rates of interest that usually accompany secured loans can increase your risk. If interest rates increase significantly in the future, you could be left unable to meet your repayment schedule. Personal loans normally have fixed rates so this isn’t a problem.
Your long-term financial stability essentially depends on your ability to repay a secured loan and because they are usually borrowed for longer periods of time, there is a greater margin for error. If you borrow for a business venture and it doesn’t work out as planned, you might end up in a very difficult financial situation.