How does a secured homeowner loan work?

Homeowner loans are quite flexible because there’s no set amount that one person can borrow. It depends on numerous factors, but the most important is the equity you own in your home.

As we just covered, you can only borrow money for the portion of the property you own, so you can secure a large loan if you own a significant percentage of the home.

Once you receive the money, you can use it for numerous purposes, including:

• Renovations and improvements to your current property.

• Purchasing a new car or going on holiday.

• Paying for school fees or private tuition.

• Consolidating existing borrowing into a monthly repayment amount.

While homeowner loans are flexible, a lender will want to know what you plan to use the loan for and evaluate your application based on whether they think you’ll pay back the money.

Homeowner Loan Interest Rates

A loan secured against your home will also have different interest rates depending on your lender’s agreement. Knowing the difference between them is essential – especially as they could impact your repayments.

• Variable rates: Many loans use the Bank of England base rates, so your loan payments could increase if these change.

• Short-term rates: Fixed interest rates for some of the term, but then you move onto the standard variable rate.

• Fixed for term: These loans have the same interest rates for the entire duration. Even if the repayment period is ten years, you’ll pay the same each month.

The advantages of homeowner loans

Borrow larger sums of money

Homeowners can also borrow more money than people without a home. For example, most personal loans are capped at £25,000 because people cannot offer a lot of collateral – but secured loans are different.

If you have a lot of equity, you can borrow up to that amount – although lenders usually offer a loan-to-value ratio of 85%.

Some people can borrow up to £250,000 depending on their lender and equity, so there are plenty of opportunities to finance large purchases.

Extended repayment terms

Perhaps the most attractive benefit of homeowner loans is their long repayment terms, which are easier to deal with than short-term loans. You’ll usually pay these loans back over many years instead of months, giving you more flexibility financially.

Yes, there’s a longer commitment, but long-term repayments are much easier to budget than paying back a loan over a few months.

It’s tempting to borrow more

You might know how much you want to borrow but discover you can borrow more. It’s easy to get carried away, but it’s also a huge mistake.

When you choose to borrow money, think about how much you can realistically afford and stick to that amount. Many people decide to loan more money, and they get into trouble further down the line.

There are serious repercussions if you don’t make loan repayments

When you take out a loan, the lender will expect you to make your monthly payments on time. If you default on the agreement, there will be repercussions – especially if it’s a recurrent problem.

You could risk losing your home and having a poor credit score, which will impact your finances in the future.

Most large purchases are subject to a credit search, and a high score is challenging to build up.

Most lenders have an early repayment charge

When a loan provider agrees to lend you money, they expect you to pay it back and do it within the allotted time (even if that’s years).

The main reason is that lenders want to receive interest for the loan, but if you pay it back quicker than initially agreed, they’ll sacrifice repayment amounts.

A loan provider will often include early repayment charges to get around this and still give borrowers flexibility.

These charges can be pretty high, so it’s essential to be aware of them before entering into a loan arrangement.

We partner with specialist lenders

Mainstream lenders are fine as long as you meet their criteria. As a broker, we work with specialist lenders who are more willing to loan money based on an applicant’s personal circumstances instead of whether they tick each box.

As such, you’ll be able to find competitive rates and have access to providers that you might not know about.

Support during the loan application process

Our brokers don’t just give you the provider’s contact details; they support you through the homeowner loan application stage. Whether you need help with gathering your financial documents or arranging the loan, Believe Money is always available.

As an award-winning second-charge mortgage broker, we’re confident that we can help you find a deal that doesn’t compromise your existing mortgage. We work with people from all backgrounds and offer brokerage services to anyone, regardless of their credit score.

Zero upfront fees

Upfront fees are an issue with many brokers, and we completely understand that you don’t want to spend any money outright. We add our fees onto secured homeowner loans, so you won’t have to pay us anything until you begin making repayments on your loan.

Get a free homeowner loan consultation today