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* Your home could be repossessed if you do not keep up with repayments
If you’re a homeowner you might find it a little easier to take out a loan by using your home as security against the debt. This type of ‘secured loan’ can sometimes enable you to borrow a higher amount than an unsecured loan might offer as well, specifically because the asset you’re providing as security will mean your loan company is taking less of a risk by lending to you.
Of course, it’s vitally important that you bear in mind that although this type of homeowner loan might represent less risk to the lender, it does mean there’s more risk for you, the borrower. Since your home will be used as security against the debt, if you’re ever unable to meet your loan commitments there’s the risk that your home might be repossessed by the lender. As such, homeowners should only consider this type of home owner’s loan if they’re very confident that they will be able to comfortably meet the repayments and their financial circumstances aren’t likely to change during the term of the loan.
Is a home owner’s loan the same as a mortgage?
No, although both a homeowner loan and a mortgage are secured loans that use your property as security, a homeowner loan is sometimes referred to as a ‘second charge’ because it’s often borrowed in addition to and alongside the primary mortgage on the property.
When there is already a mortgage in place at the time a homeowner loan is taken out this ‘second charge’ will usually be limited to the amount of equity the homeowner has in the property. By contrast, a mortgage (or remortgage) can often be taken out for a sum up to the full value of the property.
Your ‘equity’ in the property is basically the proportion of the home’s value that is mortgage-free.
How much can I borrow when I take out a homeowner loan?
It’s difficult to answer that question because it will depend on a number of different factors that are specific to each borrower, including:
- How much equity you currently own in your property
- Your gross income
- Your typical expenses and outgoings
- Your occupation
- Your credit history
- Your other debt obligations.