Secured Homeowner Loans Explained

There are two main categories of loan into which every loan type will fit, and that is secured loans and unsecured loans. This article is concentrating on secured loans.

With a secured loan the borrower makes an asset available as security for the debt (usually a residential home). The debt is therefore secured against the collateral, and should the borrower default on the loan, the lender is entitled to take possession of the asset that was used as collateral, or force its sale in order to recover as much of the debt as possible.

In the case of property being used as security, the lender places a charge on the property. Usually, the mortgage lender has the 1st charge on a property, which means that when the property is sold, the money owing to the mortgage lender is paid back before anyone else, including the owner, gets any money. With a secured loan, the lenders charge normally sits behind the mortgage lenders charge as a 2nd charge. As a result of this, if the property is sold the 2nd charge will only be paid back once the mortgage (1st charge) has been cleared. This is why the lender insists that there is sufficient equity in the property if it is to be used as security, to ensure that there is enough money left over after the mortgage has been cleared.

As a result of the loan being secured, the lender is at a lot less risk of losing his money compared to an unsecured loan with no collateral. It is because of this, the applicant does not need to have the best credit record which would be the case for an unsecured loan, and as such people who have been refused an unsecured loan may still be eligible for a secured loan. Secured loans can be taken out over longer repayment terms than unsecured loans - up to 25 years, which allows scope for keeping the monthly repayments down, which can be useful when budgeting.

You can also borrow much larger sums than with an unsecured loan, which tend to have a maximum of £25,000. The amount that you can borrow will differ from lender to lender, as will the rate of interest charged. The interest rate charged is normally risk related, i.e. having a good credit record usually results in qualifying for a lower rate. You should also be aware that the equity you have in you property can also have an impact on the interest rate you are charged.

So how do you go about sourcing a secured loan? It is not something you can get by popping down to the high street like you can with an unsecured loan. Finding the best homeowner loan to fit your situation can be a complex thing to do as there are several factors that the lender will take into account. The easiest way is to identify a reputable secured loans broker, who has access to all the lenders and their products. Most lenders only make their loans available through brokers. The broker will be familiar with the requirements of each lender and will thus be able to use their expertise to find the best loan to suit your individual requirements from the many loans available, saving you hours of work.

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