Homeowners with equity tied up in their homes benefit from more borrowing options. If you own your own home, you have the option of applying for a variety of different types of secured loans.
When a loan is secured against your home, you can borrow in larger sums and often qualify for a more competitive rate of interest. But what specifically is a ‘homeowner loan’ in comparison to a conventional mortgage?
What is a Homeowner Loan?
As the name suggests, a homeowner loan is a loan issued against your property. It is a loan taken out along your existing mortgage, which is why it is sometimes referred to as a second-charge mortgage.
The amount you can borrow will be determined by the amount of equity you have in your home at the time of your application. For example, if you have repaid £150,000 of your outstanding mortgage, this is the level of equity you have found the total amount you can borrow against.
How Does a Homeowner Loan Work?
A homeowner loan works in a similar way to a conventional mortgage. Your lender determines how much you are able to borrow in accordance with the equity you have in your home, you complete a loan application, and a decision is reached fairly promptly.
After which, you repay the balance of the loan by way of a series of monthly repayments. As you will also need to continue paying your mortgage payments as standard, your homeowner loan provider will need to conduct affordability checks to ensure you can comfortably meet your repayment obligations.
How Much Can I Borrow With a Homeowner Loan?
Maximum loan amounts vary significantly from one lender to the next, though are always tied to the amount of equity the borrower has in their home.
As a very general rule of thumb, homeowner loans can be issued starting from around £10,000 up to £2 million or more.
What Are the Benefits of a Homeowner Loan?
When a loan is secured against the borrower’s property, it can almost always be provided with comparatively low borrowing costs. In addition, offering equity as an ‘insurance policy’ for the loan can make it easier to qualify with a broader panel of lenders.
If you have a low credit score, a history of bankruptcy or no formal proof of income, it may still be possible to qualify for a secured loan. Even if you have been turned down for a personal loan, or any other financial product, you may still be eligible for a secure homeowner loan.
What Can a Homeowner Loan Be Used For?
Homeowner loans have limitless scope in terms of potential uses. They can be used for any legal purpose whatsoever and it is unlikely you will need to provide your lender with a full disclosure of how you intend to use the money.
Some of the more popular uses for homeowner loans include debt consolidation, funding home improvements, covering business expenses and purchasing buy-to-let properties.
However, it is important to remember that with any kind of homeowner loan, your home is at risk of repossession if you do not keep up with your repayment obligations.