Secured and homeowner loans
Secured loans, also referred to as home loans, second-charge mortgages or homeowner loans are a special form of secured loan attached to your property.
Why choose a secured homeowner loan?
Homeowner and secured loans are all about borrowing a large sum of money, typically from £35,000 onwards. This is because normal unsecured personal loans are usually only available up to £35,000.
How much can you borrow on a secured loan?
The loan amount you can borrow through a secured loan will depend on the value of the equity in your home, your credit score, your income, and your financial commitments. For example, if you live in a £400,000 home, but have a £370,000 mortgage and a poor credit score, it's unlikely you'll be able to borrow the maximum amount typically offered by secured loans of £100,000.
What are the advantages of a secured loan?
The main advantage of a secured loan is the amount of money you can get access to at relatively short notice. What's more, the interest rates on offer are fairly typical, and comparable to smaller loan amounts. Finally, you'll pay off the loan in a series of regular payments, meaning you should be able to plan your repayments accordingly.
What are the disadvantages of a homeowner loan?
The main disadvantages are related to the huge risk in taking out a homeowner loan should you fall behind in your repayments. If you fail to keep up your payments on a normal loan it will damage your credit score, lead to a repayment plan and, in the worst case, end up with you declaring bankruptcy. But with a homeowner loan the downsides are far more acute. Failing to maintain your payments on a homeowner loan could mean losing your home. That means you should only ever consider taking out a secure loan if you are sure you can maintain your payments, have access to another source of credit in the event of an emergency, or have no other option. What's more, the main benefit of a secured loan – namely the huge size of the loan you could potentially get – is entirely contingent upon your credit file, which will impact the interest rate you are offered. Finally, homeowner loans may also be subject to high upfront fees.
What can you do if you don't want a homeowner loan?
The main alternative to a secured loan is to remortgage your property, although this still means the same risks and dangers apply. If you have a large amount of equity in your home you may be offered a very competitive rate, but you must at all costs keep up your repayments.