What are home secured loans?
Home secured loans are a form of loan which is offered to lenders, but secured against equity they own in their home. It is similar to a standard secured loan but uk home secured loans can only be secured against equity in a home, whereas a standard secured loan can be secured against any asset deemed suitable by the lender.
Home secured loans tend to have much lower interest rates than standard unsecured loans as there is less risk to a lender, as they have your home as leverage should you fail to meet your loan repayments, and are for large loans, usually over £7,500 which are borrowed over a longer period of time.
How do home secured loans work?
Home secured loans are very simple. A borrower who wants to borrow money against the equity in their home will first need to work out how much equity they have in their home, as this will be the maximum amount they can borrow with a home secured loan.
To work out how much equity you have in your home, you must first work out the value of your home, and how much your outstanding mortgage is worth. You then simply take the amount of mortgage you have outstanding away from the value of your home, and the remaining amount in the equity you own in your home.
If you find that you owe more money on your mortgage than the value of your home then you are said to be in negative equity, and a home secured loan may not be for you. There are special home secured loans for those in negative equity you may be able to try instead.
Once you have borrowed money, which is secured against the equity in your home, you must keep up with your monthly repayment plan, or your lender is entitled to repossess and sell you home, taking the money they are owed back, before giving the rest back to the mortgage company for the money that they are owed.
Why do people take out home secured loans?
There are many different reasons why someone would take out a home secured loans, with the most common being extensions or home improvements, which in turn will increase the value of the customers home anyway.
Other uses of home secured loans include consolidating more expensive debts, and paying for a new car.