Homeowner Loan Guide
What is a secured homeowner loan? What can I spend the money on? Can I settle a secured loan early? What regulations control secured loans?| What is a secured homeowner loan? | Top |
A secured loan is a loan agreement that gives the lender security against the money lent to the borrower; usually this is the borrower’s house. It does not matter whether the property put up as security is mortgaged or not. If the secured property is mortgaged, the loans are known as second charges, and if there is no mortgage on the secured property and the property is owned outright, then the loans against the property are known as first charges.
The institutions that lend money, such as banks and building societies, like lending to people who own property, and why not, it is a no lose situation for them. However, this is not the case for the borrower who stands a chance, be it a small one, of losing his or her home if they default on the repayments.
Unlike an unsecured personal loan where the maximum you can borrow is 25,000 GBP, with a secured loan, you can borrow between 3,000.00 GBP and 100,000.00 GBP and if you shop around, you can find lenders who are prepared to lend you 125% of the value of your property you are using as security. The period in which you have to repay the secured loan is between 3 years up to 25 years, whereas in the case of an unsecured loan the repayment must be made within 10 years.
What does a homeowner loan cost?
This cost of borrowing money via a secured homeowner loan depends on a number of things, such as, how much equity you have in your property which you are using as security to obtain the loan, your credit history, your ability to pay the loan back. All of these will determine how much you can borrow, how long you are given to pay the loan back, and what the interest rate against the secured loan will be. Remember, when you are quoted the APR (Annual Percentage Rate), these are only typical rates that are for guidance only, and that the exact interest rate you will incur on the secured loan will depend on your individual circumstances. It is worth while checking the APR of different secured loans and secured loans providers, as this will give you a good indication which ones are competitive and which ones are not. In most cases, it is far easier to obtain a secured loan rather than an unsecured one. Because the lender has security against the loan, due to the fact that the property of the borrower ‘secures’ the loan, the lender is more likely to lend to the self-employed, people who have just changed their employment, and people whose credit rating is not all that it could be.
Secured homeowner loans also provide for those of us who need to borrow a large amount of money, or need a longer time to repay the loan.
If your credit history is slightly a little tarnished, you are far more likely to be granted a secured loan than an unsecured loan, due to the fact that you are putting your home up as security.
| What can I spend the money on? | Top |
The money obtained from a secured loan can be used for many purposes, the lender is happy because he has your home as security, so you could buy a new car, new boat, holiday of a lifetime etc, etc. Just remember you must pay the secured loan back, otherwise you are risking your home.
| Can I settle a secured loan early? | Top |
There are some lenders that do not charge for early settlement of secured loans, and there are other lenders that will charge you extra for paying off the secured loan early. Make sure when applying for a secured loan, you read all the terms and conditions associated with the agreement and in particular look out for what is known as an early redemption fee, which in other words means early settlement fee.
| What regulations control secured loans? | Top |
The Consumer Credit Act of 1974 has definite rules regarding secured loans and how the money is lent. However, the Consumer Credit Act only covers secured loans up to the value of 25,000 GBP. Secured loans that are greater than 25,000 are unregulated. When filling in the application forms for a secured loan, make very sure before signing on the dotted line that you read and understand the terms and conditions associated with the agreement, as after you sign, they are legally binding. For those secured loans that are under 25,000 GBP, the Consumer Credit Act of 1974 states that the lender must give the borrower a seven-day cooling off period before enforcing the contract.
What can I do to safeguard my payments?
Most lenders offer a variety of insurance policies and payment protection insurance (PPI) to protect your monthly repayments against ill health, unemployment etc. The cost to provide this type of insurance varies from lender to lender, so once again, it pays to shop around to find the best deals.
