Homeowner loans are a financial product that many people get confused about. They are a kind of secured loan, but not a mortgage (despite what the name may suggest). With the cost of living continuing to rise and the housing market also in a state of huge uncertainty, homeowners may be struggling to finance the larger expenditures in their lives. Moreover, data shows that fewer people are moving. People are choosing to stay in their homes for much longer and moving less frequently since the 2008 financial crisis. This could suggest a boom or an increase in the number of people considering taking out homeowner loans to invest back into their property or to use for an extension to make the home they already own more suited to their lifestyle. What’s more, it suggests that homeowners are paying off more equity in their property than they used to, meaning they might be granted access to extremely attractive homeowner loans.  

Our guide is here to help you understand why you might consider a homeowner loan as an option when you are in need of credit. 

What Is A Homeowner loan? 

A homeowner loan is a kind of secured loan, in which equity within a property you own is put up as collateral for a loan. The amount you can borrow will depend on how much equity you have in the property and could also be subject to market conditions. 

Of course, there are other factors that lenders will assess when looking to offer you a loan, including your credit score and credit report. Repayments are typically spread out over a long time. As standard this can be any thing from three years to twenty five years, similar to a mortgage. The cost of the loan is usually fixed and will be made in monthly instalments. 

Whereas a secured loan can utilise any kind of valuable asset to lock it in, a homeowner loan must be a property. A disadvantage is that, in order to qualify for all the benefits of this kind of loan, you will need to own a property. It’s not an accessible product for renters.  

Lower Interest Rates

A homeowner loan is quite a low risk for lenders, because they are confident that they will get the return on their lending investment (one way or another). Moreover, a homeowner, especially one that has repaid a considerable sum of their mortgage, typically looks like a favourable borrower. You look like a responsible person and attractive to lenders. All this means is that lenders, especially those who are well financed and have a healthy appetite, are more likely to lower their rates. This could mean extremely manageable repayments, suitable for debt consolidation or to run alongside other monthly expenses such as ongoing mortgage payments and other bills. 

It is worth noting that a homeowner loan typically has a longer repayment period in contrast to an unsecured personal loan. Longer repayment periods could make the total loan cost more expensive. Consumers will need to weigh up if they want manageable repayments (which could reduce the risk of defaulting or missing a payment) or a cheaper loan. 

Ideal For Rebuilding Your Credit Score

Many individuals neglect to nurture their credit score; this could lead to a low and unfavourable profile, which could lead to you being rejected for standard or unsecured loans. An unsecured loan does not take into consideration an individual’s gross net worth and the equity they own in their property. Instead, they focus purely on historical data and affordability checks. 

A secured homeowner loan is the a fantastic alternative as it is a suitable source of credit for those people who may have bad or a low credit report. It does also provide an opportunity for consumers to start to rebuild their credit profile, which could give them access to better, more flexible and more affordable credit in the future. 

It is important to note that taking out this kind of loan should not be done so lightly and will incur some costs. It should only be taken out when you are in a genuine need for credit. 

Higher Lending Limits

We all experience cash flow problems every now and again, it’s just that some emergencies or unexpected expenditures are bigger than others. One of the most attractive aspects of a homeowner loan is that they are able to lender higher amounts. 

Lending limits can range from anything from £5,000 - £250,000. Of course, this will be dependent on the equity available in the property that is being put up as collateral. This kind of money could provide so much opportunity, homeowners could use their loan to:

  • Consolidate unsecured or high-cost debts

  • Redecorate the home

  • Put an extension on the home

  • Pay for unexpected medical bills

  • Invest money back into the property 

  • Handle an emergency or unexpected cost, such as a funeral

  • So much more

Only in some cases will an applicant have to declare how they want to use the money at the point of application. Although homeowner loans are incredibly flexible, they are also a financial product with subsequent risks and consequences when a lending agreement is not met.

 

Published by Lavismichel Inkel