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Can I get a loan secured on my house?
Yes, you can get a secured loan on your home. Some expenses can take a toll on your finances if you use your savings to cover them. Homeowner loans can help you spread the cost of such expenses into easy and affordable monthly instalments.
You can borrow a secured homeowner loan by leveraging your home or your equity in a property as collateral. Since these loans have collateral, lenders have a lower risk proposition, resulting in a lower interest rate on loans.
Homeowner loans can be a great way to borrow considerably larger money. So, when you’re looking to finance a big-ticket expense such as a home improvement project or a costly medical procedure, a secured homeowner loan may be a suitable option.
Two of the most popular loans for homeowners are – Home Equity Loans and Home Equity Lines of Credit (HELOC). Both are forms of secured finance, and thus, both have severe repayment implications.
While secured homeowner loans may be a convenient and low-cost financial solution, failing to repay these loans can pose a risk of repossession to your property. If you default on the loan, the lender may repossess and sell your assets to recuperate their loss. Thus, you must opt for a secured loan after fully understanding the consequences.
How exactly do secured homeowner loans work?
If you own your home outright or are the mortgaged owner, you can apply for a secured homeowner loan. The lender will likely require you to have good equity in the property, which means that the property’s market value should be greater than the mortgage balance.
Homeowner loans enable you to split your expenses into affordable monthly instalments and lighten your financial burden. You can leverage your equity in a property to borrow an amount from £1,000 to £35,000 and repay it within 3-7 years. When you know how much money you need and how you’re going to use it, this type of loan works best.
Lenders would generally look for the appraised value of your property, details about your outstanding mortgage balance, and your credit score, among other factors. If your application for a secured homeowner loan is approved, you will receive a lump sum in your bank account, which you can use as you see fit. If you fail to repay the loan, the lender may foreclose, repossess and sell your property to recoup their losses. Thus, it is crucial to adhere to your repayment schedule and be responsible for your credit usage.
What are different types of secured homeowner loans?
Criteria | Home Equity Loans | HELOC |
Basics | Home equity loans enable you to borrow money against your equity in a property. | Home Equity Line of Credit is a revolving credit wherein lenders set your borrowing limit based on your equity in a property. |
Collateral type | Entire property or your equity in a property. | Entire property or your equity in a property. |
Interest rates | Fixed – you pay interest for the entire loan amount. | Subject to lender’s criteria – you only pay interest for the amount you borrow. |
Disbursal of credit | Lump-sum transferred directly into your bank account. | You can withdraw funds on demand until you reach the borrowing limit set by the lender. |
Repayment term | The Cycle begins as soon as the amount gets disbursed. | You pay interest on the amount you borrow, followed by repayment of the principal. |
Repayment implications | A default could put your home at the risk of foreclosure and repossession. | Missing payments could threaten your property, as the lender may sell it to recover their loss. |
How will home equity loans and HELOC affect my credit score?
Like any other form of credit, the impact of a home equity loan and HELOC would depend on how responsibly you utilise and pay off the credit. You would typically undergo a credit check as part of the lender’s due diligence, briefly lowering your credit score.
Once you get your home equity loan, you will have to adhere to the mutually agreed repayment schedule and make timely repayments.
If you fail to repay your home equity loan, the lender may repossess and sell your assets to recover their loss. Additionally, a default could take more than 150 points off your credit score.
You have a high credit utilisation ratio if you use most of the available credit on your credit cards. Using your HELOC to pay off those balances will lower your utilisation and boost your credit scores. But to improve your financing standing, you must avoid spending more than 30% of your credit limit and refrain from opening any new credit lines.
Since HELOC is a secured loan, the balance on your HELOC does not count towards your credit utilisation.
How to calculate my home equity?
Let’s say your home is worth £200,000, and your mortgage is £100,000. You’ll have £100,000 in home equity if you deduct the remaining mortgage from the home’s value.
Taking a few more factors into account, consider another example. Let’s say you’ve been paying on a 30-year mortgage for five years. Additionally, a recent appraisal estimated the market value of your house to be £250,000. Your original £200,000 loan still has £135,000 remaining on it. Most of the early payments on your mortgage go towards paying off the interest.
So, if you subtract the £135,000 in debt from the market value of £250,000, you have £115,000 in equity if the house does not have any other obligations. You can also divide home equity by the market value to determine your percentage. In this case, the home equity percentage is 46% (£115,000 ÷ £250,000 = 0.46 X 100).
Let us assume that you also took out a £40,000 home equity loan along with your mortgage. Instead of £135,000 in debt, the property now has £175,000 in debt. As a result, your home equity percentage drops to 30%, equal to £75,000.
What is the eligibility for secured homeowner loans for bad credit?
You will need to qualify for a loan even if you are borrowing money by using the equity in your home as collateral. The lending criteria vary by lender, but your credit history plays a significant role in your application.
To qualify for a home equity loan, you need a fair credit score. The lender will also consider other factors, such as:
What to consider before borrowing a secured homeowner loan?
Getting a secured homeowner loan is a critical decision since it involves pledging your home as collateral. Ask yourself these questions to get more clarity on your borrowing decision:
You must assess your affordability before borrowing a loan. Ensure that you borrow an amount you can afford to repay within the decided loan term.
Long-term loans demand more commitment. Besides, the decision becomes even more critical when your home serves as collateral. Evaluate your finances and circumstances carefully to figure out a convenient loan term.
Missing a payment can cost you a few points off your credit score. Suppose you continue to miss payments and default on your loan. In that case, your lender may repossess and sell your property to recover their money. Therefore, you have to stay on top of your repayments and maintain a healthy credit relationship.
Pledging your home as collateral can put a great deal of responsibility on you. A contingency plan to tackle emergencies will help you keep up with repayments. Make an informed decision before borrowing a secured homeowner loan.
Calculate monthly payments
Representative Example
Loan Amount
£1,000
Loan Term
18 Months
Total repayment
Monthly repayment
RAPR
79.5%
Interest
59.97% p.a (fixed)
*The rate you get will depend on your individual, financial circumstances. Late repayment can cause you serious money problems. For more information, go to moneyhelper.org.uk.
Tell us how much you need, for how long, and for what purpose.
We find you the loan offers you qualify for from multiple lenders.
Select the loan that best matches your circumstances, and Get Funded.
Different lenders have different lending criteria. Lenders consider multiple factors when evaluating your credit score, but keeping it within the mid-600s may be a good call. To obtain competitive interest rates, you should aim for a higher score. Your credit score plays a vital role in the success of your application. Therefore, having a good credit score can undoubtedly benefit your application.
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Qualify for homeowner loans with ease:
Once you receive your homeowner loan, you may use it as per your requirement. The list includes:
Taking out a home equity loan can provide you with financial relief, but you must use it responsibly. It is best to avoid using these funds for discretionary expenses and borrow just what is necessary, even if you could have borrowed more.
Typically, a lender will allow you to borrow 60-80% of the equity you hold in your home. However, the amount you can borrow does not solely depend on the equity. Loan applications are evaluated based on some factors, including your credit score, employment status, and income. So, the available loan amount may vary on a case-by-case basis.
You can borrow up to £35,000 over 3-7 years with LoanTube.
The rate you are offered will depend on your individual circumstances.
Representative APR Example: On an assumed loan amount of £1,000 over 18 months. Rate of interest 59.97% per annum (fixed). Representative 79.5% APR. Total amount payable £1,554.10 of which £554.10 is interest. 17 equal monthly repayments of £86.09, and the final month’s payment of £90.57.
Our APR rate starts from 18.22%. The maximum APR we offer is 770%, but you will get a personalised rate tailored to you. The minimum repayment term is 3 months, the maximum repayment term is 7 years.
Warning: Late repayment can cause you serious money problems. For more information, go to moneyhelper.org.uk
Credit subject to status & affordability assessment by Lenders.
LoanTube is a credit broker and not a lender.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on any debt secured against it.
