Homeowner loans

Having a loan secured against your house or flat could affect your ability to remortgage or take out a mortgage on a new property.

That’s because the loan will increase your outgoings and reduce the amount of equity in your home that you own outright. This could make mortgage providers more cautious about lending to you.

Once the loan is paid off, it shouldn’t generally affect future mortgage applications.

If you sell your house, you’ll usually need to pay off your secured loan before you move. You can either:

• Pay back the loan outright before you sell your house

• Pay back your homeowner loan using the proceeds of the sale

Some lenders will also allow you to transfer a homeowner loan to your new property, although you may have to pay a fee.

Homeowner loans can have variable rates, which can go up or down, or fixed rates that stay the same for a set period.

When you compare homeowner loans, look at the APRC (annual percentage rate of charge). It shows you, as a percentage, the annual cost of a loan over its duration, including the interest and any fees.

But remember, you may not get the advertised APRC. The rate you’ll get depends on things such as your credit score, the amount you borrow and over what term.

You can use Compare the Market to compare secured loans up to £250,000, but how much you can borrow will depend on:

• The equity you have in the property

• Your income

• Your credit history

• Your age

• The loan term (length of the loan).

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

For example, say your house is worth £350,000 and your outstanding mortgage balance is £150,000. That means your home equity is £200,000.

Fees that you might need to pay if you take out a homeowner loan include:

• An arrangement fee for setting up the loan

• A valuation fee, because the loan is secured by your property

• A broker fee, which can be a fixed amount, a small percentage of the loan or a combination of both

• An early repayment charge (ERC) if you pay off your loan early.

Total amount payable is how much you’ll end up paying back over the length of the loan. It includes the original amount borrowed plus all the interest that’s accrued.

With a homeowner loan you:

• Borrow money using your home as security

• Must own a property to apply

• Can use the money however you like.

With a mortgage you:

• Borrow money to buy a home

• Don’t have to own property to apply for a mortgage

• Use the money to buy a property.