loan search for homeowners

The latest research from the country’s largest consumer pollsters, YouGov, shows that up to 6.5 million people over the last three years have opted for debt consolidation as a way of wresting back control over their debts. For those serious about getting their debts under control a homeowner loan could represent the best route to debt consolidation. 

A homeowner loan is just what it says it is – a loan taken by a homeowner, with the home offered as security. Because it is a secured loan, with a considerably reduced risk for the lender, the borrower can reap the benefits of a lower rate of interest than an unsecured loan. At the beginning of 2008, for example, the price comparison website moneyexpert found that the typical interest rate on credit cards was 17.01%, and 8.44% on the average unsecured loan. Homeowner loans, however, could be found for as low as 5.9%. It is easy to see the attraction, therefore, why it can be worth considering consolidating high-interest credit card and unsecured debt into one, secured loan.  

It is also interesting to note that, according to the same source, the majority of homeowner loans are now being taken by borrowers who have been rejected for an unsecured loan because of an adverse credit history. This, again, lends weight to the use of a secured loan as a vehicle for debt consolidation.  

Obviously, however, homeowner loans also have other uses other than debt consolidation and can be a source of major borrowing over an extended period of time. Although the current state of the financial markets has made a loan of 100% or more of the property’s value a thing of the past, it is still possible to borrow substantial sums by way of homeowner loans.  

There is no doubt that lower rates of interest and the potential for borrowing by otherwise riskier customers make homeowner loans an attractive proposition. However, prospective borrowers should watch out for the arrangement fees likely to be charged by the lender or broker advancing a secured loan. This reflects the need for the greater degree of formality involved in a secured, compared to an unsecured, loan and is not included in the advertised rate of interest on the loan itself.  

A further note of caution about using a secured loan as a means of debt consolidation is that such borrowing should be used to clear accumulated debt, rather than to start out on a fresh round of borrowing on credit cards or other unsecured loans. Such a new spiral of debt would prove even more costly.  

The reason for sounding such cautionary notes, of course, is that the whole principle of a secured loan such as this is that your home is offered as security. If you get into difficulties with debt once again and fail to meet your repayment obligations, then you stand to lose your home.  

In summary, a homeowner loan offers many people the opportunity of getting their debts under control, since: 

• On average, it offers a considerably cheaper rate of interest than either credit card borrowing or an unsecured loan;
• According to some recent market research, the majority of new homeowner loans are being taken up by borrowers seeking debt consolidation; 
• Homeowner loans may be available to those who would otherwise be refused an unsecured loan;
• There will be an arrangement fee for drawing up the terms of a homeowner loan;
• By offering your home as security against the loan, if you default on the repayments, your home would be at risk.

Mel Harley is the author of this article.

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

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