You could have thousands locked up in the value of your home. So if you need to borrow, is taking out a secured loan against your home sensible or something to avoid at all costs?
There are three main ways that you can borrow money against your home:
A secured loan: A loan that is secured against the value of an asset, usually your property. You can compare secured loan rates here.
A further advance: This lets you take on more borrowing from your existing mortgage lender. The rate is usually different to your main mortgage, but the additional funds are secured against the value of your home.
Remortgaging: If you're eligible, you can remortgage to raise some cash by borrowing more money than you owe on your home. But keep in mind all the fees involved to see if it really is cheaper than other forms of borrowing.
For all these options you are putting forward your home as a guarantee that you will repay the money you borrow in full and on time. This means that you could lose your home if you are unable to repay the loan.
Borrowing against your home is risky and should only be considered if there are no alternatives.
You can consider borrowing against you home:
If you need to borrow a large sum of money and want a long repayment term.
If you want to make home improvements or raise a deposit for a second property.
You should never borrow money against your home to pay off existing debt. Here is how to pay off your debts.
The main drawback is that you are putting your property at risk.
By offering your home as security you are giving the lender a legal claim to your property should you be unable to repay your borrowing for any reason at a later date.
This means that if you fail to keep to the agreed repayment plan, the lender could repossess your property or force the sale of your home in lieu of repayment.
There are two main benefits of applying for a secured loan:
If you need to borrow a large amount (over £25,000), a secured loan may be your only option.
How much you can borrow depends on:
Secured loans can sometimes be a cheaper option because the lender has collateral for the loan, rather than simply your word you will repay, especially if you need a significant amount.
However, this is now rarely the case as personal loan rates have fallen and can often be the cheapest option.
Check the cost of both options before you make a decision, as the difference between secured and unsecured personal loan rates is not as great as it used to be.
If you have a poor credit record and are unable to secure a standard personal loan you may have more success applying for a secured loan.
Secured loans are viewed as being less risky by the lender, as if you default they could reclaim the outstanding debt from your property.
Although this may sound like an attractive option, if you have had difficulties managing credit in the past you will need to think carefully before putting your property at risk by applying for a secured loan or taking out a further advance on your mortgage.
Additionally if you have a poor credit rating, the cost of your borrowing is likely to be high, even if you are securing the loan against your home.
If you increase the borrowing secured against your home it is worth thinking about insuring your income.
Income protection is especially important if
you would struggle to repay your existing mortgage, bills and your new loan if you lost your job.
There are a number of other ways to get the borrowing you need including:
An unsecured home improvement loan: Some lenders offer larger unsecured loans if you use them to make home improvements. You can compare home improvement loans here .
A social loan: Where you borrow from other savers online. Peer to peer loans often have low interest rates because their lending cos
A credit card: If you want a more flexible way to borrow then a credit card could be an option. You can check our credit card comparison to see whether any of the cards available suit your requirements.
If you decide that a secured loan is best choice then you need to get the cheapest deal on your borrowing possible.
Look for a secured loan with the lowest possible interest rate to keep the cost of your borrowing to a minimum.
You can compare secured loans side by side using our secured loans comparison table.
Need a loan? Compare loan lenders side by side to find one that is cheap to pay back, lets you borrow what you need and has repayments you can afford.