Considerations for a Secured Homeowner Loan

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If you own your home then you may be accepted for a secured homeowner loan. Even if you have a bad credit rating, do not fear as most lenders will still offer you a loan for up to 85% of the value of your home for a maximum of 35 years. Great news! Or not? Would it be great if your lender forced you to sell your home in order for them to get their loan back?

With a homeowner loan, the loan is secured against your home which means that, as there is hardly any risk involved for the lender, you may be encouraged to borrow more than you could with an unsecured personal loan. What’s more even if you have bad credit most lenders will still accept you, because even if you default on your payments the lender knows that they are guaranteed to get their money back. Forcing you to sell your home would be their very last option, lenders are reluctant to do this as it costs them money, but don’t be surprised if you begin to be bombarded with letters and phone calls. What’s more, you can wave goodbye to getting credit in the future.

Think carefully before you take out a secured homeowner loan…

  • If you have a good credit score there are other loan options that will be available to you. It’s always worth shopping around for loans instead of just going with the first one you see as, depending on the amount of loan you need, there could be other loans out there offering less risk and cheaper rates.
  • Most secured homeowner loans come with variable rates which means if the rate of interest increased so would your repayments. As a result of this, homeowner loans can be hard to budget for as there is no certainty on the overall amount that you will end up paying back.
  • Homeowner loans always have attractive repayment rates. However, the rates are only so low because you are borrowing over a long period (sometimes 25 years) and not because their interest is any lower than other loans.
  • Have you got a contingency plan in place in case you get into any financial difficulty? How would you make repayments if you were made redundant and struggled to find a new job? Remember – it is always best to be truthful with your lender and let them know that you are struggling; they may be willing to come to an agreement with you.
  • If house prices fall and you are forced to sell your home, you run the risk of negative equity. Lenders have the right to sell your home for an amount that simply pays off your debt, they are under no obligation to get a best price for your home.
  • What exactly are you going to spend your loan on? A new car? Home improvements? Is the need for this loan great enough to risk losing your home over?

Unsecured cash loans can be a good alternative to secured homeowner loans as they are not secured against any of your assets. When taking out a loan it is always worth shopping around for the loan that’s best suited to your needs and budget.

Provident Personal Credit are a home collected credit company who offer unsecured cash loans of small amounts and short term loans. Visit www.providentpersonalcredit.com for more information on loans.
The opinions expressed in this article are those of the authors only and were relevant at the time the article was written. They do not represent the views or opinions of Provident Financial Plc.