Homeowner loans


couple getting a loan

What is a homeowner loan?

A homeowner loan is a way of borrowing money where the lender uses your home as security, in case you’re unable to pay back the loan.

It allows you to borrow a lump sum against your property and is a type of secured loan.

This type of borrowing reduces the risk for the lender but increases the risk for you if you can’t repay the loan, as the lender could repossess your home to pay off the outstanding debt. his also means that if you don’t keep up repayments, your home is at risk

person looking for a loan on mobile phone

How does a homeowner loan work?

To take out a homeowner loan you’ll need to own all or part of your property - this is known as the equity in your property.

Also known as a second-charge mortgage, this type of loan uses your home as security. The amount a lender is willing to lend you will depend on the Loan To Value ratio (LTV) and won’t necessarily be up to 100% - most second charge lenders have different LTV criteria and this will depend on different factors, which could include credit score, affordability, first mortgage, debts and household outgoings and your personal circumstances such as employment status. The loan amount will also be impacted by your age and the loan term.

The loan can be repaid over a term of up to around 35 years. You’ll need to make monthly repayments to pay off the loan, plus any interest you’re charged.

With a homeowner loan, if you can’t pay back the loan and your home was repossessed, your mortgage lender would be repaid first before any money went to paying off the loan.

You’ll need to notify your mortgage lender if you’re applying for a homeowner loan.

What is a secured loan?

A secured loan is a type of loan that uses an asset of yours, usually your property, as security.

This gives the lender confidence that if you’re unable to repay a loan, they could repossess and sell your asset to recover the money you owe.

Because there’s less risk for the lender, these loans often come with lower interest rates than a standard personal loan and you can usually borrow larger amounts.

Plus, secured loans can be easier to get approved for if you have a poor credit score or no credit history.

Am I eligible for a homeowner loan?

Lenders will have different criteria you’ll need to meet to be approved for a loan, but typically they’ll look at:

  • Your income and outgoings
  • Your credit history
  • The value of your property
  • The amount of equity you have in your home
  • Your first mortgage provider gives permission for the second mortgage lender before it can be granted

The more equity you have in your home, the larger the amount you’ll be able to borrow.

Who are homeowner loans suitable for?

Homeowner loans are worth considering if you want to borrow a large sum of money or extend your lending and they might be suitable if you:

  • Own part or all of your home
  • Have a poor credit history
  • Are finding it difficult to get approved for a personal loan
  • Need to fund a large expense like a wedding
  • Want cash to make home improvements or renovations
  • Want to repay a loan over a long period of time
  • Need a deposit for a second property
Remember to consider the repayment amount carefully - if you fail to make repayments, your home can be repossessed. 

What types of interest rate can you get with a homeowner loan?

Typically, homeowner loans will have more competitive rates than unsecured loans. But the type of interest rate you choose will affect how much your loan will cost over the entire term.

Homeowner loans are split into two types of interest:

Variable interest loans

The interest you pay can change depending on the Bank of England base rate or market forces. This means that your monthly repayments might go up during your loan term and you may pay more overall than you were expecting to.

Fixed-rate interest loans

With this type of loan you pay a fixed amount of interest throughout the loan term. This can give you peace of mind that your repayments won’t change and can help you to budget.

You can also get a short-term fixed-rate loan - you’ll be given an introductory fixed rate for an agreed period, usually between one and five years, and then be moved onto the lender’s standard variable rate once it’s finished.

Types of homeowner loans

There are several different types of homeowner or secured loans that can use your home as security, including:

  1. Mortgages

    A standard mortgage is a loan that’s secured against your home. The loan-to-value (LTV) ratio is usually very high and can be up to 95% of the value of your property

  2. Second mortgages or second-charge mortgages

    Also known as a homeowner loan, the money you borrow is secured with the equity you own in your home. Typically, the more equity you have the more you can borrow

  3. Bridging loans

    This type of loan can help free up cash to buy a new property while you’re waiting for the sale of your current home to go through. The loan is secured against your home and is designed to help you borrow money for a very short period of time

  4. Bad credit loans

    If you’ve got a poor or limited credit history, a bad credit loan could be an option. One of the most common types of bad credit loan is a secured loan, where you can use your home as security to reduce your risk to lenders

  5. Debt consolidation loans

    This type of loans lets you combine all your existing debts into one loan with a lower interest rate. If you’ve got a poor credit history, you might be offered a debt consolidation loan that’s secured against your house

What should I consider before taking out a homeowner loan?

If you’re considering a homeowner loan, it’s worth thinking about the following before you make a decision:

The risk of losing your home - You’ll risk losing your home if you fall behind with your repayments. For this reason, you might want to also look at unsecured options

The long-term commitment - A homeowner loan is typically taken out over a longer period, so you’ll need to be confident you’ll be able to afford the payments in the future

The interest rate - Always compare interest rates and APRs to find the best deal. Some loans come with a variable interest rate which means your monthly payments can change

Costs and charges - Many homeowner loans come with set up and arrangement fees which can affect the APR and how much the loan will cost you overall

The impact on your credit file - Try to check your eligibility before you apply. Rejected applications can leave a mark on your credit report

The equity you have - You can only get a homeowner loan if you have enough equity in your home, so you may need to borrow less or wait until you own a larger percentage

Take a look at your current finances - second mortgages are subject to the same affordability and financial checks as first mortgages. You should consider tidying up your finances, checking for unwanted subscriptions, making sure payments are up to date and to check your credit score

How to get a homeowner loan

We can help you find the right homeowner loan and compare your options. You’ll need to let us know:

  • The amount you want to borrow
  • What you need the money for
  • Whether you’re a homeowner (if not, this isn’t the right loan for you)
  • Some personal details, like your name, address and income

What are the alternatives to a homeowner loan?

When you’re looking at options to borrow money, there are other alternatives that might be better suited to your needs.

For example, you could:

Remortgage to a new lender

If you’re coming to the end of your mortgage deal, you might be able to switch to a new lender and borrow the extra funds you need. This is often the cheapest way to raise money

Consider an unsecured loan

Depending on your circumstances a 0% credit card or personal loan might be a good option. These are most useful if you have a good credit history and want to borrow smaller amounts over a shorter term

Frequently asked questions

Because there’s such a wide range of homeowner loans available, there isn’t really a typical rate. Instead, lenders will calculate your interest rate based on factors in your application including:

  • Your credit score
  • How much you want to borrow
  • The amount of equity you have
  • The loan term

This is the difference between how much your property is worth and how much is left on the balance of your mortgage.

The equity is the amount of the property that you own outright - in other words, the amount you’d get to keep if you sold your home today.

Yes, if you use a broker it can affect how much the loan will cost you, so it’s important to take that into account before you decide to borrow.

The APR you’re offered by the lender will tell you the total cost of borrowing, including the interest rate and any charges or fees you might have to pay.

But the broker’s fee is separate to this.

When you take out a homeowner loan, the fees you might have to pay include:

  • An arrangement fee
  • A valuation fee
  • A broker fee
  • Early repayment charges

While it’s generally more difficult to get a loan if you’ve got a less than perfect credit history, it can be possible to get a secured loan, like a homeowner loan.

Whether you’re eligible will depend on several factors, including your current financial situation and how much equity you have in your property.

Using your home as security reduces the risk for the lender, which can make it easier to borrow money - but the lender could sell your property if you fall behind on your payments.

If you’ve got a bad credit score, there are other options you could consider including unsecured bad credit loans. But if you’re struggling with your finances, it’s a good idea to get some free debt advice before taking out any kind of loan.

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