Categories
Homeowner Loans | Best Options Compared
When you are looking for personal finance, one question that comes up fairly quickly is ‘are you a homeowner?’ - but why does owning a home make you a better prospect for getting a loan?
At Clifton Private Finance, we work constantly to try to find the best loan deal for our customers, and that means comparing the very best loans for homeowners.
In this article, we compare homeowner loans to unsecured loans and to remortgaging, to help you decide which loan is right for your situation.
And get a fast, free quote, you can compare options below:
Why Being a Homeowner Makes a Difference
Banks and other lenders are always seeking to lower their risk when lending money - working out how reliable and trustworthy you are when it comes to paying back a loan is their greatest concern, and anything you can do to show that you’re a good borrower will help.
That’s where being a homeowner becomes relevant. When you own a home, whether you still have a mortgage or not, you show the following:
- A responsible commitment to making payments - Most homeowners either have, or have had, a mortgage; and making regular repayments to such a large loan shows that you have fiscal responsibility and a maturity with your finances. Of course, it’s not always true, and there are plenty of irresponsible homeowners out there, but as a general rule it’s in your favour and that’s what lenders consider when making risk assessments.
- A tie to your location - Owning a home means you are far less likely to ‘do a runner’, as you have more to lose by doing so.
Of course, while these factors are taken into consideration, they are far less important than the key third point:
- You can secure the loan by using your home as collateral.
This is the main reason loan companies want to know if you are a homeowner.
By offering your home as a guarantee to the loan, you leave the lender in little doubt that they will get their money back. This is called a secured loan and differs in many ways from the standard unsecured personal loan.
Homeowner Loans vs. Unsecured Loans
A secured loan is one that has an asset (in this case, your home) tied to it as collateral. If repayments on the loan are not paid, then the asset can be repossessed by the lender and sold to repay the debt.
This is in contrast to an unsecured loan, where the lender is providing the loan based solely on your reputation and the relatively minimal security of the legal system.
For a bank or other financial institution lending money, a secured loan is far more preferable. It takes the risk of the loan away from them and places it squarely on your shoulders. This comes with some benefits:
- Higher chance of loan acceptance - unsecured loans need you to have an excellent credit rating, while a secured loan can be approved even if your recent credit history is a little less stable.
- Lower interest rates - Interest rates are always a risk vs. reward calculation. When the risk is high, the interest rate on the loan is high. Secured homeowner loans are that much less risky, and so the interest rates offered are far lower than unsecured loans, meaning the lender makes less profit off you each year.
- Larger loan values - Riskier unsecured loans will be limited, with most lenders capping them at £25,000 and others up to £50,000. If you’re looking for a larger loan amount, then you’ll need to look at a homeowner loan where the limit is set based on your home value.
- Smaller monthly payments with longer loan terms - Secured loans can be arranged with longer repayment schedules, meaning your monthly payments are a lot more manageable. Do note, however, that a longer repayment term will mean you pay more in interest as the years go by.
What about the obvious disadvantage - the looming threat of repossession?
It is real that your home is at risk if you do not make repayments on a secured loan, so it is essential you only consider a secured homeowner loan if you are confident that you will always make that monthly payment.
It’s important that you obtain independent financial advice and talk through the loan terms thoroughly so you are making a fully informed decision.
At Clifton Private Finance, our advisors can discuss the various loan options available to you and help you find a deal and loan arrangement that suits your circumstances. Speak to us today to find out how a secured homeowner loan might help you.
Secured Homeowner Loan vs. Remortgage
One confusion that often arises is the difference between a secured loan using your home as collateral, and a remortgage. Surely, they do the same thing?
It is true that both a secured loan and a remortgage represent loans secured on your home, but the difference is in the layer of security and how it affects your loan terms.
The new mortgage pays off the old one in full, and you start a new agreement, sometimes with a different lender. This remortgage becomes the first charge or senior debt that is leveraged against your property.
A first charge mortgage is the primary debt held against your property and is paid first should anything happen that involves a repossession or other legal financial undertaking; the second charge debt is only paid once the first charge debt is cleared.
For the lender, this means a first charge mortgage is less of a risk than a second charge mortgage or loan and, as explained above, this means it typically is a better deal with a lower interest rate.
However, paying off any existing mortgage and remortgaging is a complex process which involves a whole new mortgage application and often incurs early repayment fees. Not only that, but you run the risk of replacing a good low interest rate that you managed to secure the first time around with a less advantageous rate with the remortgage.
For this reason, it is often more financially sound to take out a homeowner loan rather than a remortgage.
However, it is always worth analysing the numbers and seeing which arrangement is better for you.
Getting the Best Loans for Homeowners
The UK loan marketplace is a complex environment with hundreds of different products provided by over a hundred different lenders. Finding the best deal with the lowest interest rates is difficult and takes a lot longer than a quick internet search.
For this reason, brokers and advisory services exist to help.
Our team do all that laborious hard work, diving deep into the various differences between loan structures and interest rates, as well as having the expertise you need to find specialist loans if you are suffering from bad credit, are self-employed, or have any other financial position that makes a traditional high-street loan impossible.
Speak to one of the Clifton Private Finance team today and unlock the power of your home to get impressive financing.
Or, get a free quote below:
