A homeowner loan, which is a form of a secured loan or a second charge mortgage, is a loan that is secured against your property. Homeowner loans can be useful if you want to borrow a large sum of money. They are typically used to fund home improvements, consolidate existing debts or fund large purchases.
Unlike unsecured loans, if you have a bad credit history you are still likely to be able to get a homeowner loan. This is because you are providing an asset so the loan company will always be able to get their money back even if you appear to be a riskier lender.
Another benefit of having an asset as security is lenders can often see this as a smaller risk and may charge lower rates of interest. It is important to remember that you could lose your property if you do not make your payments, so only take out a homeowner loan if you are sure you are financially able to make repayments.
For more information visit our guide on Homeowner loans.
To qualify for a homeowner loan you need to be a homeowner or hold some equity in a property. This is because a homeowner loan is a loan that is secured against your property, so you need to have one for you to be able to use it as collateral. For people who do not have any property, secured loans can be taken out against other assets.
If you still have a mortgage that you are paying off you can still get a homeowner loan against the equity you have in the property. For example, if you have been paying your mortgage for 10 years, then you will own a percentage of the property that you can use to get a homeowner’s loan.
The amount you can get on your homeowner loan depends on various different aspects. This includes the amount of property you own, as you must own enough to cover your loan, and your credit history.
Yes, secured and homeowner loans can be repaid earlier than initially agreed. Early repayment is where you clear your debt before you were legally obliged to and can be done if you have the funds to cover the rest of your existing loan.
It is important, however, to note that some lenders charge penalties for repaying loans early. This is to ensure that the interest they would have collected is not completely gone due to early repayment.
Some lenders we work with have an early settlement charge which is approximately 2 months’ interest on the outstanding balance of the loan. Before opting to pay your loan off early, consider the costs and decide whether it is worth it or not. This will depend on how much time you have left on your loan and how much the overall loan is worth. Each lender is different, and if you think you will be able to pay your loan off early it could be beneficial to opt for one without an early repayment fee. Please check the mortgage documentation for exact early repayment conditions
A homeowner loan can be used for almost any legitimate purpose. Due to the high amount you can get from a homeowner loan, they are most typically used for covering the cost of larger expenses.
Common purposes for people taking out homeowner loans include:
- Debt consolidation – taking out one large loan to cover all existing loans. This way you can keep track of your money owed easier, and hopefully have a lower interest rate.
- Home improvements – if you are undertaking a large and expensive project on your home, a secured loan is a great way to cover the costs and spread them over time.
- Vehicle purchases – if you are in the market for a new vehicle but don’t have the money to complete the purchase, a secured loan can be used to pay off your purchase over time.
- Wedding costs – weddings can be expensive, which is why a secured loan can be really helpful. This way you can have the wedding of your dreams without having to pay out all of your own money in one go.
Your loan can be used for any legal reason you may have, though it is important to only take out an amount you will be able to afford to repay.
Many of our lenders offer long-term repayment options to give you the flexibility you need to repay the loan in full.
Each lender we use will offer you a different loan term depending on your individual circumstances. The term will be made clear to you at the time of your application and again before the loan is accepted. If at any time you are unsure about the repayment term or any other aspect of your loan agreement, contact your lender for full details.
A Fixed Rate refers to the interest payable against the loan you take out in order to repay the lender. In principle, a fixed-rate loan means the interest payable on top of the amount you borrow remains constant throughout the time of your repayment.
With other types of loans such as variable rates, the level of interest payable may fluctuate with other economic factors. This could mean some of your monthly payments are higher with added interest. With a fixed-rate secured loan, you know the exact amount you will pay each month until the end of the term unless you choose to pay more.
Benefits of Fixed Rate Loans
- Budgeting to repay your loan each month is much easier. You will pay the same amount each month until the end of the term so you will know exactly what you owe the lender.
- Less risk is afforded by a fixed-rate loan. For many people running a tight budget the safety of knowing they will not see a sudden interest rate increases adds peace of mind. This can help with monthly budgeting and know what you can afford in the future.
- Fixed-rate secured loans are normally available over 2-5 years giving you the flexibility to be able to afford the repayments.
A variable-rate refers to the interest payable against the loan you have taken out with a lender. Unlike a fixed-rate loan, the level of interest payable on your loan, shown as a percentage, can fluctuate over your repayment period. This means it is possible your monthly repayments could increase and decrease over your loan term with changes to the lenders Standard Variable Rate.
Many lenders will alter their Standard Variable Rate over time in accordance with other economic factors such as the value of currency or the Bank of England’s Base Rate. Movements to these factors will likely affect the interest rate on your loan.
Opting to go for a variable rate loan can be cheaper than a fixed rate with lenders often offer a lower interest rate on these loans. This is subject to the movements mentioned above. If you are unsure which type of loan is best for your circumstances, seek financial advice from an expert advisor.
Loan to Value, often seen as LTV, is a measure used by lenders for mortgages and secured loans to assess the risk level. LTV is measured as a percentage of your loan amount against the value of the asset you are securing against, usually property. Your loan to value percentage can be cumulative across numerous secured loans
How to Calculate LTV
It is simple to calculate the loan to value percentage of your agreement. Simply divide the loaned amount by the value of the asset it is secured against and multiply by 100.
For example, if you have an outstanding mortgage balance of £80,000, an outstanding homeowner loan balance of £10,000, your loan amount is £90,000. If your property value is £100,000 then your Loan to Value (LTV) would be 90%.