If you’re a homeowner, you may be looking to borrow money for home improvements, have business plans that need funding or other important plans. Whatever the reason, you will probably have to decide whether to take out a secured loan opposed to an unsecured loan.
A secured loan simply means that you are offering up your property to the lender as security. These types of loans are quite often called second charge loans, when you take one out, a charge is registered against the asset (property or land) with the Land Registry.
Essentially, your mortgage lender will have the first charge on your home and the lender of your secured loan will have a second charge on your home. You pay the loan back at an agreed sum each month in the same way as you would with an unsecured loan, most secured loans will be offered with a degree of flexibility, meaning you may be able to pay back a lump sum to clear part or all of the loan without any early repayment penalties. This will allow you to pay the loan back over a shorter period than originally agreed.
One of the downsides to secured loans is that they are secured against an asset, so defaulting on the loan could mean you are putting your home at risk of repossession. You could lose your home if you are unable to maintain the monthly payments.
An easy way to check to see if you can afford the monthly repayments is to use a loan calculator to get an idea of potential monthly payments. Loan calculators, as with best buy tables, assume you know the rate you would qualify for, which isn’t always the case – it’s always best to speak to a professional adviser who can work this out for you.
When you take out a secured loan there could be a degree of uncertainty about what is going to happen in the future. Having payment protection insurance in place should mean the insurance company will make payments to your credit commitments if something happens that prevents you from keeping up your monthly payments (depending on the policy), such as an accident resulting in you being unable to work, or the loss of your job for example. Having protection in place may give you extra peace of mind that you shouldn’t lose your home as a result of any unforeseen circumstances.
As more people today are choosing to improve their homes rather than move, taking out a secured homeowner loan for improvements or an extension could be a good investment in your property and your families future. The money you borrow does not have to be spent on home improvements though, you could use the funds from a secured loan for pretty much anything as long as it’s legal and will benefit you.