Loans Guides

Homeowner loans

Updated: Monday 20 February, 2012

By Martin Fagan

What are the advantages and disadvantages of homeowner loans? And how do you find the best deal?

When you take out a secured loan, or “homeowner loan”, you are guaranteeing the loan by assigning to the lender the rights to your house if you default on the repayments.

When you enter into a homeowner loan agreement there’s a lot at stake, so don’t sign-up unless you’re 100% sure that you will be able keep up with repayments.

As a result of the dramatic fall in property prices the nation has endured since the crash of September 2008, many lenders have withdrawn from the secured loan market, as property is no longer seen as providing as much security as it once did.

However, there are still secured loan deals available and in this guide we look closely at the pros and cons of getting a secured loan as well as offering top tips on finding the cheapest deal.

• What are the advantages of homeowner loans?
• What are the potential drawbacks of homeowner loans?
• Payment protection insurance
• And finally...

What are the advantages of homeowner loans?

There are several advantages to taking out a homeowner loan:

• You can often borrow more with a homeowner loan than with an unsecured loan
• Homeowner loans are often cheaper than unsecured loans because, as the loan is secured on your house, it is seen as less risky by lenders so they are likely to offer you a better interest rate
• As a result of the credit crunch, lenders are more selective about whom they will lend to and people with a less than perfect credit history may find they have a better chance of being approved for a loan if they are willing to secure their home against their debt
• Homeowner loans can usually be arranged without the raft of punitive fees that standard remortgages tend to attract

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What are the potential drawbacks of homeowner loans?

There are several advantages to taking out a homeowner loan:

• You can often borrow more with a homeowner loan than with an unsecured loan
• Homeowner loans are often cheaper than unsecured loans because, as the loan is secured on your house, it is seen as less risky by lenders so they are likely to offer you a better interest rate
• As a result of the credit crunch, lenders are more selective about whom they will lend to and people with a less than perfect credit history may find they have a better chance of being approved for a loan if they are willing to secure their home against their debt
• Homeowner loans can usually be arranged without the raft of punitive fees that standard remortgages tend to attract

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Payment protection insurance

It’s unlikely you’ll now be offered or pressurised into taking out payment protection insurance (PPI). This is because this particular financial product has been thoroughly discredited by a misselling scandal. The regulator has imposed such stiff penalties on financial institutions that many now refuse to offer PPI to customers for fear of being accused of misselling it.

PPI was riddled with exclusions; it didn’t cover the self-employed, contract workers or pre-existing medical conditions that might prevent you from working and many policies were sold to people who were unemployed or retired and therefore didn’t have an income to protect. Read more on PPI and how to claim if you were missold a policy.

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And finally...

If you decide a homeowner loan is the right choice for your circumstances, follow our top tips to get the best deal:

• Check your credit report before you apply for a loan - Not only will checking your credit report reveal to you how you look to prospective lenders, it also gives you the opportunity to correct any information that is wrong and give yourself the best chance of being approved.
• Make a budget - Make a note of your income and outgoings and carefully work out how much you can afford to borrow without stretching your finances - it’s crucial that you can afford your monthly repayments, especially when the consequences of missing any may put your home at risk.
• Don’t borrow more than you need - While it may be tempting to add a little extra to the loan amount to treat yourself, don’t do it - borrowing more will cost you even more in interest in the long run, and you’ll likely be in debt for longer, so only borrow what’s necessary and resist spending more of tomorrow’s money today.
• Compare homeowner loans to get the best deal - When taking out a homeowner loan it is essential that you compare loans to find the best rate available -when comparing loans make sure you look carefully at the annual percentage rate (APR) as well as checking for any additional fees.
• Watch out for payment holidays - Some lenders may offer to defer your repayments for a few months at the start of the loan, but you will still be charged interest during this time and this will be added to the total you owe, making your repayments proportionately larger to compensate, and your total amount repayable will be larger too, so avoid this if possible.

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