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What is a homeowner loan?

A secured homeowner loan allows you to borrow a lump sum of money against your property. It means the loan is secured for the lender, and they could repossess your home if you’re unable to pay back the debt. They’re sometimes known as home equity loans, second mortgages or
second charge mortgages.

You’ll need to make regular monthly repayments throughout the term of the loan, which could last anywhere between 1 to 35 years. If you don’t make the repayments, your home could be repossessed to pay off the outstanding debt.

It’s also worth noting that some homeowner loans charge an arrangement fee and may have other set-up costs.

With a secured homeowner loan:

  • You can borrow against the value of your property up to a set percentage
  • For the duration of the loan term you’ll have to pay interest
  • You’ll need to pass credit and affordability checks to qualify for a homeowner loan

Our loan comparison service lets you compare loans up to £100,000.

Who are homeowner loans suitable for?

This type of loan is generally for homeowners or mortgage payers who want to borrow a larger sum of money than they could with a standard personal loan.

Providers may want to see that you’ve built up equity in your home (you’ve paid off part of your mortgage or have a home that’s increased in value), so that you have funds available to pay off the loan and any outstanding mortgage debt, if you’re unable to make repayments.

If you want to use your home to raise funds, remortgaging is a possible alternative.

Frequently asked questions

What should I look out for when taking out a secured homeowner loan?

There are four things you need to understand before you take out this type of secured loan:

  • If you fall behind or stop making payments on the loan, the lender could take you to court and your house could be repossessed and sold to repay the debt.
  • This kind of loan could have a variable interest rate – so it can be difficult to budget your repayments, as the rate could go up or down as the market changes. And if you also have a variable rate mortgage, you could get hit twice if rates go up. So it’s important to make sure you’d be able to afford your monthly repayments if they were to increase.
  • Some lenders make it hard to pay back secured loans – for example, by imposing a penalty if you try to repay the loan early.
  • Some lenders won’t allow a ‘repayment holiday’ – which is where you can request a break of a month or two if you have financial issues.

How much could I borrow with a homeowner loan?

Homeowner loans tend to be used by people who need to borrow larger sums of money – typically between £10,000 and £100,000. They’re also usually paid back over a fairly long term, often between five and 25 years. You can use Compare the Market to compare secured loans up to £100,000, but how much you can borrow will depend on:

  • the value of your property
  • your income
  • your credit history
  • your age
  • the loan term (length of the loan).

All lenders offering homeowner loans set a maximum loan-to-value ratio. This is the amount you’ll be able to borrow, based on the value of your property. Generally, the more equity you have, the more you should be able to borrow. If you don’t have much equity in your home, the amount you can borrow will be limited.

What is home equity?

Home equity is the difference between the current market value of your property and how much you still owe on the mortgage. In a nutshell, it’s the proportion of your property you own outright.

For example, say you bought a house for £200,000 and your outstanding mortgage balance is £120,000. That means your home equity is £80,000.

When you apply for a homeowner loan, the lender will look at how much equity you have in your home. This will help to determine how much you’ll be able to borrow and the interest rate you’ll be offered.

What fees might I need to pay for a homeowner loan?

Some lenders will charge fees as part of your loan agreement, so you’ll need to take these into account when you’re budgeting. They might include:

  • an arrangement fee for setting up the second mortgage
  • a valuation fee, because the loan is secured by your property
  • a broker fee, which can be up to 10% of the loan value
  • an early repayment charge if you pay off your loan ahead of the term end date, since your lender won’t be earning the interest they expected.

What does ‘total amount payable’ mean with a homeowner loan?

This shows you how much you’ll end up paying back over the full term of the loan. For example, paying back a £30,000 loan over 15 years might cost you more than £40,000. But if you paid it back over five years, you might only pay £33,500.

So it’s best to find a balance between affordable payments and a short repayment period, to avoid paying more interest than you need to.

Can I get a homeowner loan if I have a bad credit history?

If you have a poor credit history, it can be tough to find a lender that will accept you. And if you’ve got into difficulty with debt before, it might not be sensible to get a loan at all.

That said, a poor credit history doesn’t necessarily mean you can’t get a loan. Our loan tables have a number of providers that say they will ‘consider applicants with poor credit’.

So if you’re looking for homeowner loans, we can help you find a loan to meet your needs.

Remember, though, that no matter how low the APR, loans always come with cost and risk – especially where your home’s involved. Tightening your belt and saving up is a far better option, if you can. If you have debts, it’s worth seeking out free debt advice before you decide to take on a homeowner loan.

How can I find a great homeowner loan for me?

It’s easy to compare different kinds of loans with our handy comparison service. Take a look at our tables for the amount you want to borrow and start comparing.

Simply tell us:

  • how much you want to borrow
  • how much you can pay back each month
  • how long you’d like to repay for

You’ll then see a table listing all potential options. No need to enter your personal details.

Results will be listed in order of lowest APRC (Annual Percentage Rate of Charge) first, which is the total amount the loan will cost you – including interest and charges.

How much does a homeowner loan cost?

The rate of interest you’ll be charged varies according to the size and duration of the loan, along with the value of the property you’re taking the loan out against.

Longer term loans might attract lower interest rates, but be sure to take into account the overall cost as you’ll be paying back the loan for longer.

Bear in mind that if you have a poor credit record, you’ll be charged a higher interest rate or you may even be refused for a homeowner loan.

What do I need to compare loans?

It’s quick and easy to compare different types of loans with our comparison service.

We’ll show you which loans might be available to you, once you’ve given us a few details about:

  • how much you want to borrow
  • over what period of time
  • how much you can afford to pay back each month

You’ll see a table listing all the options and the representative rate of each, with the total amount payable, so you can compare lenders quickly and easily.

Anelda Knoesen

From the Money team

What our expert says

“A homeowner loan is a big financial consideration. While the interest rates might be more favourable than with an unsecured loan, you face losing your home if you don’t keep up the repayments. You need to be confident you can pay on time every month, throughout the entire term of the loan – even if your personal circumstances change.”

Why use Compare the Market?

Compare loans for your chosen amount in under 2 minutes** Compare homeowner loans from a range of lenders Homeowner loans available up to £100,000

**On average it can take less than 2 minutes to compare loans through Compare the Market, based on data in September 2020.

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