The Working Of Homeowner Loans
As the recession has hit everyone though at varying levels, studies suggest people are in need of money more than ever before. With the increasing inflation levels, there has been a rising trend towards applying for loans. People find homeowner loans as a resort so they are able to sustain the financial instabilities that have arisen due to the uncontrollable factors. This clearly explains the fact why the people who borrow money cross the millions mark, because they have found convenience therein. As such, you must be able to understand what homeowner loans are and how they work. You must also know how to avail them to the fullest extent and use them in a way that brings you utmost benefits.
What is a Homeowner Loan?A homeowner loan is a loan against your property. Also known as a secured loan, it is based on collateral against your beloved asset, your home. A homeowner loan is known as a secured loan because your house is the security that is provided to the lender. This provides the lender an edge over the loan amount and the lender need not worry about the payment as he has obtained security against the amount provided, and that too, a valuable one. The lender gets a legal claim against your home until the amount is repaid however, you may live in your house as before and there would be no changes to that!
How much can you borrow?As homeowner loans are secured against your most valuable assets, they usually pertain to big amounts. However, the amount you are able to borrow depends upon the lender’s terms and conditions that apply to each individual transaction. The amount that can be borrowed may be as little as £3000 and as much as £100,000.
Nevertheless, the amount you are able to borrow depends on the equity value of your property, and hence the name equity loans. Equity value is the amount that pertains to the value of your home minus any mortgage value. The general rule that prevails as to the loan amount is 90% of the asset value less the mortgaged amount.
However, lenders usually lend the loan easily because they are provided with a guarantee against the home and these are the type of loans lenders are confident to provide unlike the unsecured loans.
How long is the Repayment Term?Secured against your home, the loan is subject to repayment over a period that spreads over 3 years to 30 years. As the amount of the loan is greater than other loans, the repayment terms are hence established so as to enable the borrower to make the repayment. Any time period can be chosen whatever suits you and you are able to entail greater benefits by choosing a period of your choice. An extended period will mean that you need to pay lesser amount each month; however a comparison must be made and the opportunity cost calculated of the benefit entailed and the extra interest you incur by selecting longer time duration.
What is the cost of the Homeowner Loan?The cost of the loan, that is the interest, will vary fromlender to lender and will also be dependent upon your individual state of affairs. Because you place a guarantee for the amount, the lender is satisfied on the fact that he has lien to your home and there are minor chances that you let go of your beloved home. This edge makes the lender offer you lower interest rates. The security implies there is a lesser risk of the lender’s money being lost, therefore, the interest rates are lower as compared to other types of loans.
When the borrower knows that the house is at risk and will be confiscated in instances of non-payment, there are lesser chances that the borrower will default. This gives the lender additional reason to trust the borrower with the loan.
In essence, in addition to the security provided, your interest rate will be decided pertaining to your financial stability, credit rating and time extension over which the amount spreads. Visit Sainsbury Bank for more information on the technicalities of the loan.
Who should use a Homeowner Loan?People who are homeowners and need money to fund any sort of need can apply for a homeowner loan. Being a homeowner is a must, because as the name implies, it is provided against your home. Uswitch explains in detail as to who should use a homeowner loan. However, only those in stable financial conditions, with a steady income stream or sure of future income should opt for this because you lose your home in the instance of nonpayment. Also, lenders will be keen to know your credit history and income details so as to ascertain the interest rate you will be charged with.
Lenders are also more interested in the repayment and not your home, so if you have a regular source of income and a stable employment record, there are more chances of your loan getting approved.