What is a homeowner loan?

You could use your property to help you borrow money with a homeowner loan. Here is how they work and what you need to consider before getting one.

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Paper houses, a magnifying glass and a calculator on a table looking down from above.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

Our award winning broker can guide you through the process, tailor searches to suit your needs and help you find the right loan.

How do homeowner loans work?

To apply for a homeowner loan you need to be a homeowner, or hold equity in a property. This is because homeowner loans are secured loans that are secured against your property.

What is home equity?

Home equity is the value of portion of a property that you truly own if you have a mortgage. An easy way to understand equity is subtract the amount you owe from the market value of your home.

Assume you purchased a house for £200,000. You put in a 20 percent down payment, which equals £40,000, and got a loan to cover the remaining $160,000. In this case your home equity is £40,000.

There are two ways you can increase the equity in your home.

    What can you use a homeowner loan for?

    There are a number of reasons people may need to borrow a large amount of money.

    One of the most common uses of homeowner loans, is for funding home improvements. This could in the form of improving your kitchen, or adding a conservatory to your home.

    A homeowner loan can also be used to consolidate debts in order to lower the interest you pay on that debt. While this may allow you to save money and simplify your finances, it's important to keep in mind the risk your're taking with your home.

    What are the main features of a homeowner loan

      What are secured and unsecured loans?

      What can you use as security?

      Homeowner loans use your property as security. You can use almost any type of property as your security, including;

        How much can you borrow with a homeowner loan?

        Lenders currently offer loans of between £1,000 and £2.5 million, but how much you can borrow really depends on the following:

          All homeowner loans set a maximum loan to value, which is the amount of money they will lend depending on the value of your property.

          For example, if your home is worth £300,000 and you wanted to borrow £180,000 that would be a LTV of 60%.

          If you already have a mortgage you need to deduct the outstanding balance to get your LTV.

          For example, your home is worth £300,000 but your mortgage balance is £60,000, leaving you with £240,000 in equity. To borrow £180,000 the LTV would be 75%.

          How much do homeowner loans cost?

          Like all loans, the cost of a homeowner is determined by the interest rate, but you also need to watch out for any fees charged on top of that.

          Interest

          Interest is charged for the duration of your loan and added automatically to your payments.

          To get the cheapest loan you need to look for the lowest interest rate you can find.

          The type of interest rate you choose has a bearing on the overall cost:

            Most lenders offer variable rates and fixed rates are much less common.

            Fees

            Not all secured loan lenders charge fees, but you need to check carefully so you do know what you are paying. Fees to watch out for include:

              Getting the best homeowner loan

              Most secured loans are only available through a broker, so to get the best loan you need to:

                What happens after you've applied for a homeowner loan?

                Once you've chosen a lender and applied for the loan you want, the lender will then do some checks before you get your funds. These include:

                  This process normally takes between 3-5 weeks after which the money will be transferred into your chosen bank account.

                  Paying back your loan

                  Most homeowner loans require you to pay monthly instalments by direct debit, but if you would prefer to pay using a different method speak to a broker before you apply.

                  What if you want to move house?

                  If you want to move home but have an outstanding secured loan you have three options:

                    Remember, if you choose to pay off your loan you may have to pay an early redemption charge.

                    How to manage your loan

                    Homeowner loans FAQ

                    Yes, but you will need to have enough equity in your home to meet the lender's criteria.

                    Yes, but you may have to pay an early redemption fee or early repayment charge.

                    It depends on your lender and the type of loan you choose. If you do decide to take a payment holiday then it will increase the total cost of your loan because you are taking longer to pay back what you owe.

                    You can usually get a decision on your loan within a few minutes. Most lenders can then complete the application within two weeks.

                    No, they are just different. A secured loan puts your property at risk, but may allow you to borrow more, pay it back over a longer time or be cheaper.

                    Yes, but this would always be the last resort of any lender because it is expensive to repossess a property and sell it to get their money back.

                    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.