Sometimes referred to as a “home equity loan”, homeowner loans are secured on the value of your property and not covered by your existing mortgage. Equity is the difference between how much your home is worth and how large the remaining mortgage left on it is. You can put up any form of residential property as “collateral” when you are applying, including houses, flats, bungalows and cottages.
How do they work?
Homeowner loans use the equity left in your property when you are applying for a loan. This means that, if you don’t have any equity, they will not give you a loan because they can’t sell your home and take some of the proceeds from that sale to settle any outstanding debt you have with them.
Loans for homeowners allow you to borrow a large amount of money over a long space of time. The only reason that banks and other loan providers are willing to do this is that they know that they can sell your property and recover some or all of the money you owe them if you can’t make the payments.
The amount that you can borrow using a homeowner loan depends entirely on the equity in your property. If your house is worth £100,000 and you have £70,000 left on your mortgage, you have £30,000 in equity. That means that you can borrow up to £30,000 but no more than that.
Who are homeowner loans designed for?
Homeowner loans are designed for two types of situation:
- someone wanting to borrow more than £25,000 which is the maximum amount most finance companies which don’t require security are willing to lend
- someone wanting to borrow £25,000 or less who wants to pay a lower interest rate on their loan (secured loans generally are cheaper than unsecured loans)
One common form of home equity loan is a second mortgage. If you don’t outright own your home because you’re still paying off the mortgage, you can borrow up to the value of the equity. Someone who bought a home for £100,000 and who had £70,000 left on their mortgage has £30,000 equity, as we mentioned earlier. However, if the value of the home is now £150,000, the amount of equity available is £80,000.
What are the downsides of a homeowner loan?
It is incredibly important to note that (just with every form of secured loans) if you do not make your repayments, the loan provider will take your home from you and sell it to repay your debts. This means that if you take out a secured loan that you can only barely manage to repay and you miss a number of repayments, then your lender is within their rights to take possession of your home from you.
For this reason, many homeowners do not feel comfortable taking out a secured loan. Instead, they choose to consider loans that don’t require you to give up your home to a bank if you face difficult financial times.
What are the alternatives to homeowner loans?
There are three main alternative loans to secured loans where your home is not at the threat of repossession if you fail to keep up repayments. They are:
Short-term loans are a popular way to gain access to the finance you need without the risk of losing your home. You can generally borrow between £100 and £1,000 with a short-term loan and you have between one month and twelve months to pay the loan and the interest back.
It is worth mentioning that unsecured loan applications are reviewed based on both your current financial situation and your credit score. Your credit score is a measure of how much debt you currently have and how well you service it. Applicants with good credit scores will get more offers at lower interest rates than those with less than perfect credit scores.
However, if you have a low credit score, please do not be put off applying through Loan Princess. There are still plenty of lenders who will be happy to work with you and we have dozens of them are our lending panel – to find out how we help people with bad credit ratings.
Payday loans are like short-term loans but they differ in terms of how you pay them off. With short-term loans, you pay off the debt in instalments. However, with payday loans, you pay off the entire loan on your next payday in one lump sum. The lenders associated with us understand that borrowers may face some difficulty if they have to return the money in a lump sum. Therefore, you can borrow a payday loan from any of our lenders and repay it in monthly instalments.
Finally, there are guarantor loans. This is where you get somebody called a guarantor to vouch for you to say that you can pay off the loan. The guarantor will also step up and make any loan repayments for you if you are unable to. This gives the lender the same security that the loan will be repaid as if it was secured without having to worry about having your home taken from you.
However, unlike short-term loans and payday loans where strict rules apply, guarantor loan providers do not have caps on how much interest they can charge and the level of fees they can charge you if you miss a repayment. Many guarantor loan companies are currently being investigated by the watchdog, the Financial Conduct Authority because they are worried that borrowers are being treated unfairly.
Find the best homeowner loan with Loan Princess
Here at Loan Princess, we’re one of the UK’s unsecured loan brokers and our job is to link borrowers, irrespective of the credit history, looking for short-term and payday loans with lenders who are more concerned about your situation today rather than any difficulties you may have got into a few years ago.
Here’s how we work. You fill in our application form – it’ll take a couple of minutes. Using the details you give us, we’ll then match you up with the lenders who are most likely to lend money to you. We’ll then send them the information you gave us together with a copy of your credit report. They then come back to us with their best offers.
Within seconds of receiving your application, we’ll show you the best offers we’ve got. You’ll see all the information you need to see including the amount of interest on the loan, the size of your monthly repayments, and any default charges your lender would apply if you miss a repayment.
If you like the offer, you just sign the online form and your money will be with you within an hour or two (depending on your bank account). If you don’t, that’s fine – thanks for using our service and we hope you found us speedy and helpful.
Our service is free and you’re under no obligation to accept any offer we find for you. In addition, you don’t pay any more for going through Loan Princess’ broker service than if you went direct to the lender themselves.