Beginner's Guide to Homeowner Loans
One of the main benefits of being a homeowner is how easy it is to avail a loan when needed. Homeowner loans are probably the most popular type of secured loans and it's also one of the easiest to avail in UK. As long as you are eligible, you can enjoy flexible terms and loan amounts which you can use for major investments or expenses.
But much like with any other type of loans, a homeowner loan is still a liability albeit the lower interest rate. To help borrowers especially first time applicants better understand the financial product, here are the things you need to know about homeowners loan.
What is a homeowner loan?
A homeowner loan, as implied by its name, is a type of loan that is secured on an asset, in this case your home. It is otherwise simply referred as a secured personal home and is only available to people who currently hold a mortgage.
How much and how long?
Since the loan is secured against an asset, the loan amount is more flexible and larger compared with other types of loans. Typical amount ranges from £3,000 to £100,000 or higher depending on your property's value. Say, your home is worth £300,000 and you have a mortgage of £200,000. That means that the property's equity (value of the property minutes outstanding loans or financing) is £100,000. Based on your home's equity, lenders can loan you up to 90% of said value meaning about £90,000 maximum.
For the loan term, it can be between 3 years to 25 years and you can tailor it according to what you can afford.
What are the requirements?
To qualify for a homeowner loan, the requirements are pretty basic and straightforward. First of all, you have to be of legal age and a resident in UK. Naturally, you have to be a homeowner and in general should have a minimum household income of £8,000 per annum.
You can be self-employed or full-employed but you will still be eligible for a long so long as you are a homeowner and you have proof of income.
How much is the interest rate?
Interest rates for homeowner loans vary from one provider to another. It can be from 5% to 8% or more per year and it will typically depend on the following factors - income and credit history. If you have bad credit, chances are the interest will be relatively higher than if you have a clean slate.
To compare interest rates charged by top homeowner loan lenders in UK, click here for comparisons.
How long does the application take?
Processing may take weeks, 3 to 6 on average and you are entitled to a specific period to think about the loan further if needed as detailed on the Consumer Credit Act. The lender will also need time to verify the value of the property as well as other important documents. Once the loan is approved, you can expect to receive the money within a month in the form of a check or through direct deposit to your bank account.
What are the risks?
Because the loan is a secured one, the biggest risk a borrower may face is repossession of the asset. Worst case scenario, you can lose your house in the event that you missed several repayments or default on the loan. To avoid this consequence, there are two things you can do. One, borrow only what you can afford and second, aim to make repayments monthly without fail.