Homeowner Loans – What you Need to Know
A homeowner loan is a type of loan where the money lent is borrowed against the value of a property. To get a homeowner loan, you will need to either own your property outright or have a mortgage with a large chunk of equity.
Though homeowner loans are quite risky – as you could lose your property should you fall into financial difficulties – they are a good way to borrow more significant amounts of money.
Homeowner loans are especially useful if you have a poor credit history as, from the lender’s perspective, securing the loan against your property is a less risky option as they could repossess the property should you fail to pay.
What are the Terms of a Homeowner Loan?
Depending on where you get your loan from, the terms may be slightly different so it is worth reading through all the fine print before you agree.
However, there are a few general terms that make the homeowner loan different to other types of loan.
You can borrow up to £100,000
As homeowner loans are secured, you can borrow significantly larger amounts of money.
This is a popular reason for landlords to take out this type of loan as it gives them more flexibility for renovating or even putting a deposit down on a new property.
Repayments periods can last up to 20 years
Again, you need to double check this and it may depend on how much you borrow but the longer repayment period is another reason that this type of loan could suit you better.
As it will mean there is less pressure to repay in large chunks.
Interest rates can change at any time
This is the main difficulty with homeowner loans as your lender can change the APR at any time.
Interest rates are already likely to be high on this type of loan so do the maths carefully to work out whether you can afford to repay the interest rate you are offered.
What Should a Homeowner Loan be Used For?
A homeowner loan can be used for anything but you are strongly advised that this type of loan is not suitable for paying for things like holidays or fancy cars.
This is because these types of purchases are great in the short term but aren’t going to help to either repay the loan or make a significant difference to your life.
The key thing to remember with any loan is that you should always borrow the minimum amount you need and never take a loan out on a whim.
Good uses for homeowner loans are for renovations to a property you either live in or let, for consolidating a range of other loans into a single monthly payment (as long as this is a lower interest rate) or for making another investment where the returns will be higher than the interest paid.
Before taking out any loan, you should always consult an impartial financial advisor who will be able to assess your unique situation and advise the best course of action.
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