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An introduction to homeowner loans: the key to cash in your house

By: Benedict Rohan

These days it’s difficult to get by without some form of financial
assistance – most of us have loans, mortgages, credit cards,
store cards or other types of debt. Taking out a personal loan is one
of the most common and convenient ways in which to borrow money. There
are two main types – unsecured or secured. Unsecured loans are loans
without any form of security tied to them as a guarantee of repayment,
whereas secured loans are guaranteed by some form of security to
safeguard the lender in case of non repayment. Normally the security
used in such loans is your house – whether you own it outright or have
a mortgage on it. (Loans secured against a house that already has a mortgage
tied to it are known as second charges, and loans secured against a house that is
fully owned are known as first charges.)

Homeowners therefore have a real advantage when it comes to borrowing
money, as owning property provides great potential for freeing up capital for personal use. Homeowner loans, as they are often known, allow you to use the equity available in your house to borrow money.
(Equity means the value of your home minus any outstanding debts
secured on it, such as a mortgage.) They have many benefits:

  • Equity is the key to unlocking large sums of cash from the
    value of your property. Homeowner loans allow a much higher amount of
    lending over a longer period than unsecured loans, as they are guaranteed against the value of your property and are therefore
    considered less of a risk to the lender than an unsecured loan. Even if
    you have negative equity (i.e. your mortgage or debt is higher than the value of your home) it’s often possible to get a homeowner loan, as many lenders will lend up to 120% of the value of the property.

  • For the same reason, homeowner loans tend to have a lower rate of interest than unsecured loans. This means lower, more affordable monthly repayments than an unsecured loan.

  • As with any other personal loan, the money is yours to spend in
    whichever way you want. You might want to make some home improvements,
    purchase land, use the capital to start up a business, buy a car, go on holiday
    or consolidate debts or loans.

  • Some people have problems, often because of poor credit
    history. However, as homeowner loans are secured and provide a guarantee to the lender, people who have previously been unable to qualify for an

  • often find it much easier to get a secured loan, thereby giving them access to borrowing that they could not otherwise have obtained.

    • Homeowner loans can also
    be as flexible as you want them to be. At the outset you’ll discuss and
    agree with the lender what terms and conditions best suit your needs.
    Typical repayment terms may be anything from three to 25 years,
    normally paid in monthly instalments, and loan amounts tend to range
    from £2,000 to £60,000. Interest will be charged on the
    amount that you borrow, which is known as the APR or annual percentage
    rate. The specific details of your loan – the amount, interest rate and
    repayment term – will be calculated based on the equity available in
    your property (which will need to be valued), your personal financial
    status and credit history and the lender’s confidence in your ability
    to repay.

    Research the cost of your loan carefully before you sign up to
    anything. As with any other purchase, it’s essential to do a bit of
    research and shop around until you get the best deal. You may find that
    the interest rates seem to vary considerably from lender to lender.
    However, beware of how the APR is advertised – different companies
    calculate their APR in different ways, and often display their monthly
    rates more prominently than the APR, so it’s not always easy to
    compare. (Monthly rates can be cheaper than the APR, which is very
    misleading.) For each product, find out what the APR is and how it is
    calculated so that you understand exactly how much the monthly
    repayments will be and how much you’ll be repaying in total. This will
    enable you to compare like for like between products.

    Charges and penalties can make a big difference to the cost of the
    loan. Many policies penalise early repayment, and others contain hidden
    fees and charges. Always read the small print and ensure that you
    understand the terms and conditions exactly. Ask the lender to explain
    any areas that you’re unsure about before you commit to anything.

    Another useful tip to bear in mind is that the shorter the repayment
    term, the less interest you’ll be paying and therefore the lower the
    total cost will be to you. It’s therefore best to find the shortest
    term that you can manage.

    Remember that it’s not just traditional banks, building societies and mortgage lenders who sell
    financial products.
    Nowadays there are many other types of lender in the market providing
    competitive deals at competitive prices. You’ll probably find that
    supermarkets and online providers offer the best value for money.

    Most importantly, weigh up the risks and benefits of using your home as
    security for a loan to ensure it’s the right thing for you. On the whole, homeowner loans
    offer much better value for money than unsecured loans and are very convenient for
    people who are unable to qualify for an unsecured loan. However, before
    you proceed, you should analyse your personal finances, work out your
    budget and be confident that you’ll be able to keep up the repayments,
    otherwise you could end up losing your home.–
    your property is the key to When you’ve considered all these important
    factors relating to homeowner loans and looked
    around for a suitable product, you can be sure that you’ll be getting a
    better deal with a homeowner loan than you would be with an unsecured personal loanraising
    the cash you need in an affordable way.

    Article Source: http://publisherscloninghouse.com

    Biography: Author: Benedict Rohan Website: www.mortgagenation.co.uk Benedict Rohan works as a freelance finance writer. Commercial Mortgage, Homeowner Loans, Remortgages

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