Secured and Home Owner Loans - the Ins and Outs

When my son found himself in serious difficulties abroad last year, I needed to find £40,000 very quickly to help him out. My savings were not great, so I approached the bank to enquire about home owner loans, which are secured loans against your house and payable over a long term. I had very little time to consider alternative ways of raising such an amount of money, but I did get some advice from friends first.

I looked into the possibility of unsecured loans first. These are usually personal loans from a bank or building society and are not automatically linked to the home, making them accessible to non-homeowners. However in the current economic climate, I found that many lenders looked for a ‘charging order’ on property, which essentially gave them the same rights as lenders of secured loans - i.e. if payments were not met, they could demand their money from the sale of the home.

Unsecured loans sound attractive because they have a shorter repayment span - usually less than seven years, which means you can be debt-free more quickly, though your repayments will be high. Secured loans tend to have much longer repayment spans - as much as twenty years as they can be costly for the lenders to set up. This obviously makes the monthly repayments smaller, but over the years, you end up paying much more in interest.

The problem with an unsecured loan, even if had managed to arrange one, was that the maximum I could borrow was £25,000, which was just over half the sum I needed. As secured loans can go up to £75,000, this was my only option. I did consider adding on a few extra thousand, in case of emergencies, but decided against this on further consideration. If I found I didn’t need the extra, I would still end up paying the extra interest.

There is another important difference between unsecured and secured loans. Because unsecured loans have a shorter repayment span, there is a fixed rate of interest on them for their duration. However the interest on secured loans is often variable and can go up or down according to the base rate and the terms of the lender, making them a variable rate debt. What might sound like an attractive rate today may not be so attractive in five or ten years’ time.

My wife, being the eternal optimist, was convinced we would win the lottery or something and be able to write off our debt overnight. I had to point out that in such an unlikely event, we would probably have to pay even more! This is because secured loans usually include ‘redemption penalties’ to deter you from paying off your loan early. In fact we could end up being fined if we tried to do so!

One interesting fact I learned was the importance of a good credit score and how to achieve this. Having a good credit rating makes taking out unsecured or secured loans so much easier. Simple things like keeping up regular payments on credit cards and not leaving small debts behind when you leave an address can all help your credit score significantly.

Taking out a loan should never be considered an easy option. It is a serious matter and should be given a good deal of thought. There are debt counsellors available who offer free personal advice and information about the best way forward if you find yourself struggling with debt. There are also excellent internet advice sites and it is always worthwhile doing your homework and checking out all avenues before embarking on a loan that could put your home at risk.

If you are after some cheap secured loans then be sure to check out this new personal finance site that offers some superb deals.. I found exactly what I was looking for and togther with a very competitive range of homeowner loans on offer, my son as able to secure one with very easy repayment terms. They guarantee a quick decision with no hassle.