A Beginners' Guide to Secured or Homeowner Loans

Borrowing a large amount of money is a big decision, and there are many different options available to you. It is a good idea to consider as many of these options as possible, but the main one for homeowners is the secured or homeowner loan. If you are considering this loan, there are lots of things you should think about before you decide to borrow.

What Is a Secured or Homeowner Loan?

A secured loan is also known as the homeowner loan, second mortgage or second charge loan. This type of loan is only available to people who already have a mortgage on their property and the lender will protect their investment by ‘securing’ it against your home. This means that if you do not keep up on your repayments, the lender will be able to repossess your property.

Secured vs Unsecured Loans

You will generally be able to borrow more money with a secured loan than its unsecured counterpart (normally up to £100,000), spread the repayments over a longer period (usually up to 25 years) and sometimes you will be able to pay lower interest rates (the increase in value of the loan that you must pay back in addition to the original amount). Both loan providers will conduct credit checks, but an unsecured loan provider will be more likely to let ‘credit impaired’ individuals borrow because they have collateral.

However, with an unsecured loan your home is at risk if you do not keep up with repayments. Homeowner loans also take much longer to arrange because there are more details involved, and will sometimes require an additional administrative fee. A personal loan will allow you to borrow money under your own name, but if you live with another person you will have to take out a secured loan under joint names.

Applying For a Secured Loan

You should take your time when you are looking for a loan provider. Finding the best package is important, and you may have to ask advisors to explain their services in more detail.

When you find a loan provider that suits you, the lender will conduct a search of the Land Registry to find your property information. They will need to know who owns the land and various factors such as whether there are any rights of way over the property and other restrictions. Your current mortgage company may also have a restriction over your home, so the lender will have to gain their consent to place a second charge on the property. It is normal for them to then conduct a credit check and a full valuation of your property. If you pass the checks, you will be allowed to borrow the amount you require.