When looking into different forms of financing, many lenders will offer what is known as a secured homeowner loan. Secured homeowner loans will require the borrower to offer up some type of security to the lender in case he or she fails to pay back the loan.
In many cases, this security comes in the form of the borrower’s personal home or other owned property. If the borrower defaults on repayment of the loan, the lender can then repossess the security, i.e. the borrower’s home, to make up for lack of payment. Here we will discuss what you should know about personal loans secured with homeownership.
First and Second Charge Loans
When a loan is taken out by a borrower using the property he or she owns outright as security, it is known as a first charge loan. First charge loans are generally the most inexpensive secured loan in terms of interest rates and are more attractive to lenders since they have direct access to the property should the loan go unpaid.
Second charge loans are similar, but the property being used as security still has an outstanding mortgage amount attached to it. When applying for a second charge mortgage, the lender who holds the mortgage must claim any equity that has been released so the secured loan lender will be able to recover the investment through repossession.
Second charge loans are more expensive in terms of interest rates simply because lenders wish to make them a worthwhile investment.
Loan Amounts Available through Secured Loans
The amount of funds available for secured homeowner loans tend to be higher than other types unsecured loan types since the lending institution has a guarantee to recoup its investment should the borrower default on repayment.
The amount of the loan can be up to 125 percent of the value of the property being used as security, most commonly falling between £3,000 and £100,000 or higher depending on the borrower’s circumstances.
When it comes to the expense of secured loans, lenders will offer the best homeowner loans for different targeted levels of borrowing, meaning the cheapest loans will vary from one case to the next depending on the borrower’s specific situation.
Expected Interest Rates for Homeowner Secured Loans
There is no set benchmark for the percentage of interest rates that are applied to secured loans – the interest rates for secured home loans are calculated on a case by case basis dependent on a number of different factors.
Interest rates are based on the amount of money being borrowed, the credit history of the applicant, the value of the property being used as security, whether or not it is a first or second charge loan, and the borrower’s personal circumstances, among other items.
For borrowers looking for secured homeowner loans with bad credit or those who find it difficult to have loans approved, like those who are self-employed or work on a contract basis, interest rates will generally be higher but securing funding is still possible.
It is always important to remember to compare the interest rates and packages available from different lending institutions to make sure you are getting the best deal.
Restrictions Associated with Secured Homeowner Loans
The majority of lenders who offer secured loans will not put any restrictions on the funds that are borrowed as far as what these funds can be used for or applied to, as long as it is for legal purposes. Secured loans can be used to refurbish a home, consolidate existing commitments, pay off debts – a secured loan is generally a good option for most funding purposes.
It is important, however, to make sure the monthly repayment amounts are within your household budget and that taking out the financing will be a worthwhile venture.
Secured Loan Repayment Protection
Many lenders will offer borrowers the option to take out payment protection with their loan. In layman’s terms, payment protection is a type of insurance that will protect the borrower from defaulting if he is or she is unable to make monthly payments due to not being able to work from an accident, injury, sickness, or unemployment from lay-off.
This insurance will cover the borrower for a set amount of time and, although it is an added expense to taking out the loan, it can be worthwhile should you have no means of paying the loan back for a period of time. Make sure to do your research when it comes to Payment Protection Insurance, or PPI, options – there have been some instances of PPI being misrepresented.
Secured Loans also Available for Buy to Let Properties
Many landlords wish to secure funding to help pay for needed upgrades, additions, or renovations to their rental properties. If you are a licensed landlord, it is possible to secure a loan using a buy to let property.
It is important to remember, however, that securing a loan, either against your personal home or another property you own, is a financial risk. Make sure to shop around as well because there are many lenders that will offer secured loans for buy to let properties. Asking questions and getting information from a number of different institutions will guarantee you will get the best possible deal for the loan.