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Top Tips for Homeowner Loans

Updated on August 15, 2013

Taking a secured loan against property has become very popular in the UK over recent years. Many people are finding that while property prices remain high and they retain substantial equity held in their homes, the property market has remained stagnant. As a result, many people are finding it difficult to find a new property to move to, and so are considering extending or upgrading their homes. At the same time, high street banks are lending very cautiously, and so a loan secured against equity in an existing property enables home owners to get credit without having to go cap in hand to the banks. This form of credit comes with many advantages. Rates are often more attractive than those from the high street or traditional lenders. Also by using the home as security those with average or poor credit ratings are not automatically disqualified and also may find they benefit from a better rate of finance. However there are a few things to consider before deciding whether this approach is right for your situation.

The amount to be borrowed is of course essential to any consideration of a loan secured against your property. If you are unlikely to be able to keep up with repayments, the property could be at risk of repossession. Interest rates can change meaning payments could increase, and the loan needs to be planned with enough flexibility that your budget could cope with these alterations. It is also important to consider whether the amount of money you require can be made available against the property. Lenders make their decisions based on factors including the current market value of the house after deducting any current mortgage outstanding or other loans secured against the property. Different lenders offer different rates of credit, with some being able to offer as much as 100% of the equitable value. Establish how much money you require before having credit checks made by companies who would not be able to help in your situation.

In addition, be sure to research interest rates before committing to an arrangement. Although there are a large number of credit companies offering deals both on the high street and on the internet, it is only by reading the full terms that the customer can truly understand the package and whether it represents cost effective credit for their personal needs. Whilst it may be a lengthy process, it is important to go through the small print of the contract in fine detail, looking in particular for any hidden charges such as early payment fees or transfer prohibitions. Moreover, some companies’ homeowner loans include interest rates that change over time. The offer advertised on promotional literature might only apply for the first six or twelve months of the loan’s lifetime, after which it is likely to significantly increase.

If it is likely to become necessary, some lenders are able to arrange what is known as a ‘payment break’ during repayments, but might not mention these unless specifically asked. During a ‘payment break,’ the customer is not required to meet their monthly instalments. However, interest will continue to accrue and thus the overall figure to repay will be larger than if regular payment had occurred as anticipated. Think carefully about this type of loan and whether it is suitable to you and always seek professional financial advice from an expert before entering into any secured credit agreement.

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