Homeowner loans are one of the many types of loan on the market today. However, for various reasons, they can offer customers the most likely opportunities to borrow large sums of money at relatively competitive rates.

When you take out a loan – of any kind – the lender has to consider the likelihood that you will be able to pay it back. The more risk that the lender takes in what is effectively selling you their money for a given period, the higher price they will demand from you. This is why those with poor credit scores may still be able to access credit, but at much higher rates. The increased cost is to cover the losses incurred for customers who default.

Homeowner loans are secured debt, which slants things back in your favour. Secured debt means that the borrower offers some kind of collateral in return for the loan. If they default, this collateral covers the lender’s loss. This protection for the lender means that they are able to offer much larger sums and much better rates, safe in the knowledge that, in the worst case scenario, they will not lose out. The value of the collateral will determine how much money they are happy to lend you. A house is probably the most valuable possession you will ever own and, unlike most cars (another source of collateral) is unlikely to depreciate in the long term. If you need access to large sums of money at a reasonable rate, it can be worth considering this option.

Weighing up the advantages of homeowner loans
When you shop around for lenders – which you can do easily on the internet with various money comparison sites – there are a number of factors to consider. One is the amount of money you need. Typically homeowner loans start at £3,000 or so (some lenders may start at higher amounts), and go up to £100,000 or more. If you need less than this, you may well be better off with an unsecured loan or overdraft. Another is your credit history. If your credit score is poor, lenders will be more favourably disposed to you if they can secure the loan against your house. Yet another is the term of the loan. Many lenders will treat these as long-term loans, lasting anything up to 25 years and sometimes even more. Like mortgages, payments are usually monthly.

One caveat is that putting your house up as collateral means that, if you are not able to keep up with repayments, you risk losing it. And yet this probably the only way you will be able to borrow large sums of money. In any case, if you have a mortgage you are effectively in the same position. Incidentally, having a mortgage does not disqualify you from taking out a homeowner loan – the relevant factor is the amount of equity already stored in the house in the form of your deposit and mortgage payments to date.

This entry was posted on Friday, January 16th, 2009 at 3:42 pm and is filed under Equity Release. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.