loan search for homeowners

Secured finance is safer finance. Since the risk is reduced, lenders will generally be prepared to offer a lower rate of interest or consider applications from otherwise less attractive borrowers. Why is that?  

Secured finance is about offering equity with which to secure a loan. Equity is the actual value of the collateral that is used by the borrower when applying for a loan. The lender will typically determine the amount of equity by deducting any debts you have from the market value of the collateral you put forward. The effect of this is to guarantee the loan by assigning to the lender rights to the security in the event that the borrower defaults on the loan. This is called a secured loan.  

The most commonly used collateral for such an arrangement is the borrower’s own home, or the part of the equity in the home which is not already given as security for another loan (i.e. in most cases a mortgage). If the property is owned outright, the whole of its value can be offered as security and assigned as a so-called “first charge”, whereas if there is an outstanding mortgage, the mortgage loan continues to take first charge and the secured loan takes “second charge”.  

It can be seen, therefore, that a note of caution should be sounded when offering your home as collateral for a secured loan. If you default on the repayments of the loan, then the security – your home – is at risk and could be reclaimed. A homeowner loan needs to be taken seriously.  

Secured finance by way of a homeowner loan also provides an opportunity for raising funds by those who would otherwise find it difficult, such as the self employed or those who have experienced financial difficulty in the past. A poor credit history is often likely to lead to rejection of an application for an unsecured loan where the home is not offered as security.  

A further use for secured finance is debt consolidation. Thanks to the loan being secured and the lower rate of interest that can be offered on the lower risk, it can, in some circumstances, make sense to roll up a number of high-interest bearing loans into one secured loan. Quite often, repayment terms and conditions can be more flexible, enabling you to borrow more money over a longer time span. Debt consolidation in this way can make debt management easier not only by reducing the overall cost, but by having just one monthly payment to make, though generally over a longer period of time.   

Secured finance is attractive because: 

• It attracts a generally lower rate of interest;
• The equity in property ownership can be offered as security; 
• It offers a means of borrowing for those who might otherwise find it difficult to secure a loan because of their poor credit rating;

Debt consolidation of several short-term, high-interest debts into one lower-interest debt allows repayments to be spread over a longer time frame and still save money in the long run.

This secured loans article has been written by Eli Beaumont.

The above article does not represent ‘financial advice’ as everyone's individual requirements are unique to their own specific needs. If there is something in the article above that you would like to rely on then please check the details with the person from whom you purchase a financial product or service.

The views in this article represent those of the author and not of Netbasic Limited.