Homeowner loans offer you a lump sum amount that you can use for a wide variety of reasons. From consolidating existing debts to pay for home improvements – a homeowner loan can help you sail through a rough financial patch. Generally, homeowner loans are secured against your property or asset. It is because if you default at the loan, the lender can resale or possess your property to sell it off for recovering the amount you owe to them. Isn’t there a way out where you do not have to pledge your property to take out a loan? This guide will give you a complete walkthrough of a homeowner loan.
What is a homeowner loan?
A homeowner loan is secured against your property. When you apply for a homeowner loan, the lender will assess your property along with your credit history. According to your credit score, available equity on your home along with various other factors – an interest rate will be set. When you enter into an agreement with a lender or any other financial institution, you are agreeing to repay the principal amount with the interest fee.
If somehow you cannot manage to repay the loan, your property will be at risk. The lender may possess the property to recover the amount. They may also take legal help leading you to receive a County Court Judgement (CCJ).
What are the benefits of using a homeowner loan?
As it is a secured form of borrowing, lenders offer favourable terms as compared to unsecured personal loans. This is because your profile is considered less risky as you are providing collateral to borrow a loan.
Listed below are some major benefits of using a homeowner loan:
- Such loans have longer repayment terms. You may borrow a homeowner loan for a maximum period of 35 years.
- The interest rate will be lower. That means the overall cost of the loan will also be lower.
- You have the flexibility of borrowing a set percentage of the value of your entire property. So, you have the flexibility to borrow as much as you want.
- Use the loan amount that you receive for a variety of purposes like – debt consolidation, home improvement, wedding expenses, fund a vacation.
How much can you borrow with a homeowner loan?
Different lenders offer different borrowing range. However, the loan amount that you can borrow depends on a lot of factors.
- Value of your property: The current value of your property and its equity will be evaluated while assessing your loan application.
- Your earnings: The total amount of money that you earn each month will also play a vital in deciding the loan amount that you can borrow.
- Monthly expenses: How much you spend every month is another important element that helps the lender in deciding the loan amount.
- Credit record: Your credit report will give the lender an idea of how you manage your financial life and whether you will be able to afford all the repayments on time.
- Loan amount and duration: The loan amount that you have asked for and for how long will also impact your borrowing capacity.
Depending on all these major factors, the lender will calculate your creditworthiness and affordability. This is done to set an interest rate so that in case of default, the lenders will have to face minimum possible loss.
How to get the best homeowner loan in the UK?
Multiple lenders and banks offer homeowner loan in the UK. However, to find the best homeowner loan, you have to compare various deals and choose the one that has terms suiting your requirements.
Here are 5 steps to find the best homeowner loan in the UK:
1. Calculate how much you need to borrow
You need to figure out the actual amount that you need. A loan is often tempting, but you should always borrow what you can afford to repay. If you take out an amount that you cannot repay, you are prone to fall into a debt trap.
2. Choose the loan duration
Find out an estimated monthly amount that you will be expected to pay if you borrow a loan at a certain interest rate. There are loan repayment calculators that you can use to find out the estimated amount.
3. Review your credit report
Check your credit report before applying for any type of loan or financial product. Scan your report and if you spot any errors, flag it to any of the 3 Credit Reference Agencies (CRAs) for rectification. Because if the error persists, you may not get a loan at favourable terms or your loan application may altogether get rejected. Therefore, scan your report and get the issues sorted before you apply for a loan.
4. Compare multiple offers
This is one of the best ways to find a loan at favourable terms. Whether you are looking for a personal loan, or you want to access a homeowner loan, always compare multiple offers from different lenders. As different lenders have different lending criteria, you are likely to find an offer that fits your requirement and repayment terms.
5. Talk to the lender
Read the Terms & Conditions carefully before you sign on the dotted line. Also, ensure that you go through the fine print to understand what you are getting into. If you find some objections or doubts in the Terms & Conditions offered to you, get in touch with the lender. Discuss your concerns and let them find a way out.
Pay your loan on time
Draft a budget and plan your expenses accordingly. Make sure you have room for emergencies because if anything crops out of nowhere, you should have enough to cover the expenses. Missing any repayment will reflect on your credit report taking a few points off from your score.
Also, if you consider paying off your loan early than the agreed date, then speak to your lender before doing so. Some lenders charge an early repayment fee while others do not. Hence, it will be wise to talk to the lender before you make any such decision.