Secured Loans Explained

Sep 30, 2014   //   by Keith McDonald   //   Lending Guide  //  Comments Off on Secured Loans Explained

Secured loans, or homeowner loans, allow property owners to borrow sums of money against their homes. If you don’t want to interfere with your existing mortgage arrangements, a secured loan could be the ideal solution.

Imagine the situation: house prices are going up, you want to release some of the equity in your home, but your mortgage deal is too good or too expensive to break. You’ve then become what’s effectively known as a mortgage prisoner.

Or, another scenario: you’ve become self-employed and mortgage lenders are less interested in lending to you because of the new stricter mortgage rules.

Secured loans are not only a good alternative, but also an affordable one, as rates have improved in line with the housing market.

Who are secured loans useful for?

They can be a good option for those with a poor credit history, as lenders may be more willing to provide loans if they have the security of the borrower’s property in the case of a default.

Those with large credit card balances accruing interest could find that a secured loan is a cheaper way to consolidate and repay debts if there are no other options available. (See our introduction to Balance Transfer Credit Cards.)

What are the risks?

Borrowers need to think very carefully about entering into a secured loan, as a lender may repossess the property in the event of a default.

Interest rates on secured loans tend to be variable, although some offer periods at fixed-rate interest. This is important because there is no way for lenders to predict how the Bank of England base rate will perform over the longest repayment term of 25 years. Borrowers should note, then, that a rise in the base rate could make the cost of servicing the loan more expensive over time.

[Back to Guides]

If you enjoyed this post, please consider leaving a comment or subscribing to the RSS feed to have future articles delivered to your feed reader.

Comments are closed.