Today, most banks and building societies have made changes to the way that they decide who they should give credit to. As regulations and rules become stricter, it can be far more difficult for people to get their hands on any kind of financial help – regardless of whether you’re applying for a mortgage or an automobile loan.
If you’re a homeowner, one thing you could consider if you need to borrow some money is a “secured loan”. These types of loans are designed to be secured against the full value of your home, so you will need to own your property completely, or have a mortgage on that property. Sometimes, secured loans may be referred to as second mortgages or homeowner loans.
The Benefits of Secured Loans
One of the biggest benefits of secured loans is that you can often borrow a larger amount because you are asking the company that lends you the money to take on a smaller risk. After all, in a secured loan, if you fail to pay back the money owed, then the bank or building society that gave you the money is within their rights to repossess your property to get the money that they are owed. For instance, many organisations will lend up to £100,000 on a secured loan, while unsecured loans are often for much smaller amounts.
Additionally, most providers of secured loans will also give you longer to pay back the debt owed. For a secured loan, it’s not unusual to have a term that lasts ten or even twenty years. In the case of mortgages, some loans are even provided for 35 to 40 years at a time. Of course, while a longer term means that your monthly repayments will be lower, you will end up paying more in interest over the course of your loan.
The Risk of Secured Loans
As beneficial as secured loans can be in some circumstances, it’s worth noting that they do come with a significant amount of risk. The reason that the bank or building society you choose will be willing to offer you so much money for such a long time is that you are giving them the security of knowing that if you don’t pay off the loan as you are supposed to, they will be able to take your home. This means that if you ever fall into financial hardships and you cannot make the repayments you need to make according to the rules of your loan, then you could lose your most valuable property.
It’s also worth keeping in mind that the rates that are offered on secured loans can also be variable. This means that the rate of interest that you pay could increase and decrease according to the criteria set in place by the lender or the current economic climate. Before you sign up for a loan you should check whether the rates you need to pay are variable and fixed, and factor that information into the calculations of whether you can afford a loan in the first place.
An Alternative Solution
One alternative option to a secured loan is to simply increase the amount of your existing mortgage on your property. Again, this option will only be possible if you already have some equity in your home. In most circumstances, you will be required to pay a different rate of interest on the new amount than you would on your primary mortgage, and you will also need to pay some set up fees.
Alternatively, you could consider switching to another lender so that you can take out a bigger mortgage. For instance, if you purchase a home whether £200,000 using a mortgage, you could switch to another bank and take out a bigger mortgage in order to pay for things like home improvements, or an extension to your home. Of course, in this case you would need to satisfy the lending criteria that your new bank or building society has put in place, and you may also need to pay for certain legal and set up costs too, but there’s always a chance that you could be better off this way, particularly if your new mortgage rate is lower.