Homeowner loans have become extremely popular in the UK over recent years, in particular because of rising property values which have left homeowners with vastly increased levels of equity when it comes to borrowing against their home. There are many benefits to taking out a homeowner loan, and these loans are usually also available to those with poor credit – people that would struggle to get a loan on the unsecured market.
When looking for a homeowner loan there are a number of steps you need to take:
1. Work out how much you can afford to borrow. Remember, a homeowner loan is secured against you home, and failure to keep up with repayments could result in you losing your home. Do not take on more than you can handle financially, and make sure that you leave yourself with enough financial flexibility to raise payments should you interest in the event that interest rates rise. You will be able to use an online calculator to better determine how much you can afford to repay on a monthly basis.
2. Work out whenever you will be able to borrow the amount that you need. Most lenders will base their decision on the equity levels in your home, as well as on other factors, so you need to check and see how much equity you have in your home. You can do this by determining the market value of the property, and then deducting the balance of any outstanding mortgage or other loans secured on it – the amount that is left is your equity level. Not all lenders will lend up to 100% of your property value though, so it is important to choose the right lender as not to apply to lenders who can not help you, which can waste your time, and create an unnecessary credit search against you.
3. Search around for a competitive interest rate on your homeowner loan. This can be quite a time consuming and frustrating process, as there are so many lenders and so many loans, yet it can be difficult to determine which offer truly good value. It may be a good idea to use a broker in order to get a good deal, as they will be able to match a suitable lender to your circumstances.
4. Check the small print on the loan before you commit. It is important that you always check the small print in order to ensure that there are no hidden fees and charges that you should be aware of, that could bump up the cost of borrowing, and also introductory interest rates which may change to a standard rate after 6 or 12months.
5. Arrange any necessary payment protection. You may want to take out payment protection insurance on your homeowner loan to protect your payments in certain events such as sickness, accident, and redundancy. Remember, you do not have to take cover from the loan provider – you can shop around and find cheaper cover yourself. However, do read through and ensure that any cover you take out is suited to your needs and circumstances, as what may look a good price policy, may not give you the level of protection you need, and may contain too many restrictions and long time limits before the policy will pay out after the time which any claim you have starts from.