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Debt consolidation, home improvement

What are homeowner loans?

It is a loan that is secured on your property. Normally taken in addition to a mortgage, a homeowner loan is sometimes called a ‘secured loan’ or a ‘second mortgage’. Your mortgage is known as the ‘first charge’ and the homeowner loan is called the ‘second charge’.

It is different from an unsecured loan as the lender takes a legal charge over your property as collateral.

Am I eligible?

Yes, if you own your own home and you are over the minimum age limit (typically 18 or 21).

If you don’t own your own home you should consider other sorts of lending such as unsecured loans, credit cards or overdrafts.

How much can I borrow?

You can typically borrow between £3,000 and £100,000.

The amount you can borrow typically depends on two factors. Firstly, your borrowing potential will depend on the amount of equity that you have in your property. Your equity is the difference between the value of your home and any outstanding loans secured on it. For example, if you home is worth £200,000 and you have a mortgage of £125,000 you have equity of £75,000.

Lenders will typically lend up to around 90 per cent of the value of your home, less any outstanding mortgages or secured loans.

In addition, your loan will be dependent on your income and outgoings. You will generally have to demonstrate that any homeowner loan is affordable to you and that you will be able to keep up your repayments based on your current and future income.

Over what period of time can I repay the loan?

You can typically repay your loan over any term between 3 and 25 years. You can choose a term that suits you. Perhaps you want your homeowner loan to run alongside your main mortgage or maybe you want to ensure your secured loan is paid off before your retirement age?

What interest rate will I pay?

Interest rates for secured loans vary between providers and depend on your personal circumstances. For example, if you are looking for a loan at a high ‘loan to value’ and you have experienced credit problems in the past then you may pay a higher rate of interest than someone with a clean credit history looking for a small amount.

The interest rate you pay will generally be dependent on your own loan requirements, income and credit history.

How long does the application process take?

The process typically takes 3-6 weeks. Under the Consumer Credit Act you are entitled to a ‘cooling-off’ period in which you can consider your loan application and this, coupled with the time taken to process your application, means it can be around a month before you receive the funds.

How do I get the money?

You can generally choose to receive the proceeds by cheque or by direct bank transfer into your account.

What can I use the loan for?

You can use the loan for almost any purpose. Lots of people use homeowner loans to consolidate existing debts such as unsecured loans or credit cards whilst others use them to fund a one off purchase such as a new car or a dream holiday. Many people also use the loans to pay for their wedding or to help their children through college or university.

You can also use a secured loan to finance your renovations such as a new kitchen or bathroom, a loft or garage conversion, an extension or conservatory or to refurbish or redecorate the interior or exterior of your home.

I want to consolidate other debts I have. Can I use a homeowner loan?

Yes. As interest rates are often lower than unsecured loans and credit cards, consolidating your unsecured debts into a homeowner loan can save you money.

Rather than making multiple payments to creditors – often at high interest rates – you can consolidate your debts into one simple, affordable monthly repayment. This can reduce the total interest that you pay and help to reduce your monthly outgoings.

I already have a mortgage and a secured loan. Can I get another homeowner loan?

Yes. This will depend on the amount of equity in your property and whether the loan is affordable to you. As the lender will be third in line to recoup their money if you fail to keep up your repayments (after your mortgage provider and secured loan lender) you can expect to pay a higher rate of interest for this type of loan.

I am self employed. Can I get a homeowner loan?

Yes. Homeowner loans are a popular way of raising cash for many self-employed applicants. Indeed, with many unsecured lenders making life tough for self-employed applicants, homeowner loans can actually be an easier and cheaper way for self-employed borrowers to fund home improvements or to consolidate debts.

My income comes from pensions and benefits. Can I still apply?

Yes. As long as you have sufficient income to make the monthly repayments you can still apply for a secured loan if your income comes all or primarily from benefits or company/personal pensions.

I have CCJs, defaults or missed payments. Can I still get a homeowner loan?

Yes. Many lenders are happy to accept applications from applicants with a less than perfect credit history. So, if you have County Court Judgments (CCJs), defaults, arrears or missed payments then you may still be able to raise the money that you need.

Bear in mind that you can expect to pay a higher rate of interest if you have bad credit as you represent a higher risk to the lender.

I have already been refused for a loan. Can you still help me?

Yes. Different lenders have different criteria and just because you may have been knocked back by one lender doesn’t mean that you won’t be agreed for a secured loan with another.

Is my application confidential?

Absolutely. A lender will not contact your bank, employer, accountant or other party unless they have your prior written authority.

While your employer or accountant may be required to confirm your income they will not do this without your permission.

I own my home jointly with another party. Do I have to make a joint application?

Yes. If you are married or you own your home jointly with someone else then you will both have to complete the application paperwork and provide any documentation required by the lender. You will also both have to sign any associated legal documents.

What if I want to pay back the loan early?

You can pay your loan back before the scheduled end of the term. You should expect to pay an early repayment charge depending on the amount you repay and how long the loan had left to run. You will typically pay around 1-2 months interest if you repay your secured loan before the end of the term.

What happens if I want to move house?

You can. You will have to pay back your loan when you sell your home although you may be able to take out another homeowner loan secured on your new property.

What happens if I fail to keep up my repayments?

As a homeowner loan is secured on your property, your home is at risk if you do not keep up your repayments.

If you find you cannot make a repayment you should contact your lender immediately to discuss your options. If you continue to miss payments then the lender may seek a court order to repossess your property. You could lose your home by not keeping up your monthly repayments.

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