What is a home secured loan?
A home secured loan is a loan that is secured against equity in the home of the borrower, and usually offers a cheaper way of borrowing money for those who have equity in their home than through an unsecured loan.
A home secured loan is often a loan for a large amount of money, and many hoe secured loans can be paid off over a long period of time, making them ideal for home improvements and large purchases.
How does a home secured loan work?
When a customer wants to borrow a large amount of money over a long period of time, they will often look at a home secured loan. When you borrow money using a home secured loan, you do so by borrowing money against equity in your home, and should you fail to keep up your mortgage repayments, your home may be repossessed so that the lender can take back the money that you owe them.
To work out how much money you can borrow using a home secured loan, it’s important to work out how much equity you have in your home. This is a relatively simple calculation. You simply need to work out how much your home is worth, and how much of your mortgage is still outstanding. You then take your outstanding mortgage amount away from the value of your home, and the money you are left with is the equity you own in your home.
If you find that you have a negative figure, i.e. you owe more than your home is worth, you are said to be in negative equity, and a home secured loan will not be for you, as you have no equity to secure your loan against.
Why do people take out a home secured loan?
There are many reasons why people may take out a home secured loan, with home improvements and debt consolidation just two of the many reasons.
Home improvements are proving popular at the moment as many people cannot afford to move home in a stagnant housing market, so are instead choosing to extend their homes through loft and garage conversions, or simply by adding a conservatory to the home.
Those with lots of expensive debt on credit and store cards are instead using a secured loan to pay off the debt, and then are paying it off at a lower interest rate through the secured loan.