If you own property and are looking to borrow a large amount, a homeowner loan might be right for you. Read our guide to find out what it means to secure a loan against property. We’ve looked at the benefits, risks and alternatives to this as well as how to find the best homeowner loans with Experian.
A homeowner loan lets you borrow an amount of money for a big expense, such as home improvements. You’ll repay the loan plus interest over time. Homeowner loans are a type of secured loan — they’re tied to your property, meaning there’s a risk you could lose your home if you don’t repay your lender.
With a homeowner loan you:
With a mortgage you:
Both homeowner loans and mortgages carry the risk of losing your home if you don’t keep up with the repayments.
Homeowner loans are tied to property, so you have to be a homeowner to get one. You don’t need to have paid off your mortgage but you should check with your existing mortgage provider if it’s ok for you to get a secured loan against your home.
There are a few different ways to take out a loan against your home, including:
Further advance – this is a secured loan from your existing mortgage provider. It’s separate from your mortgage and usually has a different interest rate and term.
Second charge mortgage – this is a secured loan you get from a different lender (not your mortgage provider). Although it has ‘mortgage’ in the name, you don’t have to use it to buy property.
Bridging loan – this is a short-term secured loan. It’s often used to buy a new home before selling an existing one, or to invest in buy-to-let property.
Your lender may have a few rules, such as not using your loan for gambling or illegal activity. But otherwise you’re free to spend it on anything. It’s common to use a homeowner loan to pay for home improvements, such as replacing your kitchen or building an extension.
Homeowner loans may also be used for debt consolidation. Consolidation means grouping your existing debts into one account. It can make your monthly payments simpler to manage, and you may be able to cut interest costs if you get a low-interest loan. Debt consolidation isn’t right for everyone especially as there’s a risk of losing your home with this type of secured loan.
If you miss a payment, your lender will contact you and may give you a chance to catch up. But it can also charge a penalty fee, default your account and even take legal action. A homeowner loan is tied to your property, so your lender can take away your home and have it sold as a last resort to get its money back. If this happens and you have a mortgage, your mortgage provider will take what it’s owed from the property sale first. Your loan lender goes second. This is why homeowner loans are sometimes called ‘second charge mortgages’.
If you’re selling the property that your homeowner loan is secured against, you’ll need to either pay off the loan in full or ask your lender to transfer it to a new property. You may be charged a fee if you pay off your loan early.
It’s possible to borrow more with a homeowner loan than with an unsecured loan. The amount you can borrow depends on several things.
Want to see what lenders are offering? Compare loans from across the UK market with Experian. It’s free, takes a few minutes and won’t affect your credit score.
Homeowner loans can have variable rates (which can go up or down) or fixed rates (which stay the same for a set period). Homeowner loans are usually cheaper than unsecured loans, but more expensive than first mortgages.
It’s helpful to look at the annual percentage rate of charge (APRC) when comparing the cost of loans. But remember, you may not get the advertised APRC. Your actual rate depends on things like how much you borrow, how long for and your credit score. Also, a paid-off mortgage can help you get a low-interest loan for homeowners, as lenders may see you as lower risk.
Yes, it’s possible. And you may find it easier than getting approved for an unsecured loan. This is because using your home as security can reduce the risk for the lender (although it increases the risk for you).
Consider getting a secured bad credit loan. These are designed for people with a less-than-spotless credit history. You may have to accept a lower amount or higher rate. Another option is a guarantor loan where someone (like a parent) agrees to make the payments if you can’t.
It’s also worth seeing if you can improve your credit score to reduce your chances of being refused credit.
It’s possible to free up cash by remortgaging. This works by switching to a new mortgage and borrowing more than you owe on your existing mortgage. You can only do this if you have enough equity in your home. Be wary of remortgaging to a more expensive rate or being charged an early repayment fee.
Don’t want to risk losing your home? Consider a personal loan — also called an unsecured loan because it isn’t tied to your property. You may have to accept a smaller amount and higher rate. Also, you may need a good score to get approved.
It’s wise to shop around for the best offers before applying for a loan. Searching loans with Experian is free, takes a few minutes and doesn’t affect your credit score.
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