Homeowner Loans Guide - Insurance and Universities

Homeowner Loans Guide

A secured personal loan, sometimes known as a secured homeowner loan, allows you to borrow a lump sum of money which is secured against a property.

The property is secured by the lender by way of a 'second charge', which ranks behind your main mortgage (which is held on a 'first charge' basis). This is a legal arrangement and is registered with the Land Registry.

You can use the money for whatever you want (provided it's not illegal or for commercial gain), but secured loans are commonly used to fund home improvements or large purchases (such as buying a new car), or to consolidate existing debts.

Regular monthly repayments must be made throughout the term of the loan, which can generally be between five and 25 years.

Who is a secured personal loan or homeowner loan suitable for?

Secured homeowner loans are for homeowners or mortgage payers who want to borrow larger amounts of money than standard personal loans can offer, usually up to £250,000. Borrowers tend to have built up equity in their homes that they can use as security against the loan.

What should I look out for when taking out a secured loan?

There are a number of catches and things you need to understand before you commit yourself to this type of secured loan, including:

The 'second charge' on your property means that if you default on secured loan, the lender can ultimately take you to court and order a house repossession. The first charge lender gets paid back first, and the second charge lender gets what's left, up to the value of the outstanding debt.
Secured loan interest rates are usually variable, which means it's difficult to budget as the rate could go up and down. If you've also got a variable rate mortgage, you might get hit twice if rates go up, so make sure you can afford it.

Consolidating debt is usually seen as a last resort for homeowners, but it can be a good way to get you out of a hole in the short term. Remember, if you lower your monthly repayments in return for a longer loan period, you'll end up paying more in the long term.

The selling and administration of first charge loans is regulated by the Financial Conduct Authority (FCA). Second charge loans are now also regulated by the FCA, but the rules are different than for first charge mortgages. This will be changing in March 2016 when all mortgages and secured loans will be treated the same.