A homeowner loan guarantees the loan by assigning rights to the security in the event of a loan default. The security, in this case, is your home.
There’s a lot at stake when you enter into a homeowner loan agreement, so don’t sign up until you’re 100% sure that you will be able keep up with repayments.
I should be ok, but what if I get ill or have an accident?
You can take out payment protection insurance (PPI) that will cover your loan repayments should you have to take an extended unpaid break from work. Don’t settle for the PPI that’s offered to you alongside the loan though. Once the loan has been approved, shop around for the PPI.
There are PPI specialists that will offer to undercut your loan provider. Check also that you actually need PPI; you may already be covered by a life or health insurance plan.
That sounds promising. Surely there must be drawbacks?
Consistently defaulting on payments to the point where your house is repossessed is one of the biggest drawbacks possible. You must be certain that repayments will be met, and this can’t be emphasised enough.
Loans for sums greater than £25,000 are unregulated by the consumer credit act, and should therefore be heavily scrutinised by a legal body before being entered into. The consumer credit act exists to make sure that all lenders are licensed by the office of fair trading.
