A VIDEO GUIDE TO SECURED LOANS AND HOW THEY WORK | WHAT ARE THE PROS & CONS OF THESE HOMEOWNER LOANS


Hello an welcome to Solution Loans. This short
video covers a guide to homeowner loans. Homeowner loans open up the opportunity to borrow much
larger amounts of money at a lower interest rate than other forms of lending. They do
this by using a borrower’s home as security. Therefore they are a secured loan. Loan amounts
vary considerably but many lenders will offer homeowner loans of between £5,000 and £250,000
depending upon the market value of a house and how much equity there is. Compared with
personal loans, choosing a homeowner loan could be a sensible choice particularly when
most banks only offer personal loans of up to £15,000. Because the loan is backed by
a property as security, homeowner loans are available to many people with lower credit
ratings and interest rates are lower. There are also much longer repayment schedules available.
Homeowner loans are otherwise known as second mortgages or second charge loans because the
borrower must already have a mortgage on their own property. They are not available to people
who own their home outright who should consider remortgaging if they want to borrow large
sums. Homeowner loans are more complicated forms of finance than personal loans because
of the use of a property as security. As a result, they take longer to set up than any
other form of finance with the exception of mortgages. So, how exactly does a homeowner
loan work? A homeowner loan gives a buyer access to much larger sums than a typical
unsecured loan. Even if you have a poor credit rating – including defaults, CCJs or mortgage
arrears – you may still be able to apply for a homeowner loan and take advantage of more
competitive interest rates than other forms of lending. You can stretch your repayments
out over much longer periods with a homeowner loan – sometimes as much as 25 years – and
you’ll also be able to plan your finances over the long term accordingly. How much you’ll
be able to borrow depends on, among other criteria, the loan to value of the loan, known
as the LTV. The LTV is the maximum lending value of the financial product as a ratio
of the secured property’s value. So, if the LTV of a loan is 50% and a home is valued
at £300,000, then the maximum amount of loan available would be £150,000. Different
lenders offer ranges of homeowner loans with different maximum LTVs. Those with higher
LTVs tend to charge higher APRs. This is because should property prices fall there is greater
risk that the lender won’t be able to recover the full loan amount if a borrower isn’t
able to keep up with repayments. So, why would you apply for a homeowner loan? If you’ve
got a less-than-perfect credit rating, are self-employed or have recently changed job
and don’t have three months of pay slips, you may find it difficult to borrow significant
amounts of money through personal lending. A homeowner loan could give you access to
a large lump sum to fund some home improvements, to buy a new car, have an extension or consolidate
other debts. If you have a reasonable amount of equity in your home and you have an existing
mortgage then a homeowner loan could provide you with a relatively low interest sum with
a repayment period to suit your lifestyle. So, what are the downsides with a homeowner
loan? As with other forms of lending, the amount you can borrow with a homeowner loan
will depend greatly on your income, your credit score and your existing financial commitments.
On top of this, it will depend on the amount of equity you have in your home. Although
a lender’s headline figure may suggest that you can borrow a six-figure sum the actual
amount may be much smaller if your home’s value has not risen much since you bought
it. The biggest risk with a homeowner loan is that you could find your house being repossessed
if you don’t keep up with repayments. And bear in mind that should this happen, you
could be liable for any shortfall between the sale price and the outstanding amounts
of both your mortgage and your homeowner loan. So, in conclusion homeowner loans can provide
a borrower with much larger sums than personal loans and at a relatively low interest rate.
You can choose to repay the loan over a longer period – up to 25 years – meaning that it
could be much easier to plan your repayments. If you have a poor credit history or you don’t
have a long record of employment with the same employer, a homeowner loan could provide
you with the means to make the home improvements you’ve been seeking to fund.

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