There are a variety of different ways you can apply for finance using your property. Two of the most common are homeowner loans and second mortgages. Homeowner loans are a form of secured loan using your property as collateral, and are useful for those looking for immediate and relatively small sums of cash. Second mortgages are more substantial and help those with a poor credit history. This guide will be a starting point in this process and will help you to compare loans on offer.
A homeowner loan examines the value of your property when applying for a loan. This is why they’re also referred to as a ‘home equity’ loan. Homeowner loans are a type of secured loan that puts the property as collateral for the lender. When applying for these types of secured loans lenders will look at your credit score but tend to be more willing to lend to those with poor credit scores, because they have the property as security. Although this may be attractive, it means that if you fail to make the payments then they have the ability to repossess your house.
When buying a home, most people will take out a mortgage in order to pay for it. A mortgage is a secured loan that is paid over a long period of time in relatively small instalments. The house again is used as collateral and can be taken by the bank if you fail to meet these payments. A second mortgage is essentially the same except that it takes second place to your first mortgage (which has priority of payment). You can only get a second mortgage if you have home equity, in other words if you own a percentage of the property outright, and it’s not fully under mortgage. This means if you have bad credit, you can still get a second mortgage but the interest rates may be higher.
There are advantages and disadvantages to each type of loan, you will therefore need to compare loans when assessing your own financial situation.
There are a variety of reasons why you might feel a second mortgage is the right choice for you.
As with any loan, borrowing a large sum of money is risky and has consequences if you fail to make the repayments.
Whether you have a homeowner loan or a second mortgage you will have the same options when it comes to moving home. You can either transfer the loan to a new property, which is more straightforward but runs the risk of an increase interest payments. Or, you can pay off the loan through the sale of the house or borrowing more.
Find out which loans you could be eligible to take out, without affecting your credit score