A homeowner loan is a type of loan that is secured against your property. This means your home is used as security for the borrowing. These loans may let you borrow more compared to unsecured loans, depending on your circumstances
A homeowner loan is a second charge loan that sits alongside your existing mortgage. It’s important you understand exactly what this type of loan is and how it works before making a decision. That’s because you could lose your home if you fail to keep up with the repayments.
In this guide, we’ll explain everything you need to know, including:
- What a homeowner loan is
- How homeowner loans work
- What a homeowner loan can be used for
- Whether a homeowner loan might be suitable for you
- Alternatives to homeowner loans
Taking out a secured loan is a big decision. If there’s anything you’re not sure about, check out our Help and Advice section, or give us a call on 0161 814 9158.
What is a homeowner loan?
A homeowner loan is a form of secured borrowing. It allows you to use your property as security in exchange for a loan. You may have also heard these loans referred to as secured loans or second charge mortgages.
Because the loan is tied to your home, lenders may be willing to offer larger amounts and longer repayment terms than unsecured loans. This is because their risk is reduced. If you fail to keep up with repayments, the lender may be able to recover the debt through the sale of your property.
Homeowner loans are used by people who already have a mortgage. In many cases, they are set up as a ‘second charge’ on the property. This means your existing mortgage remains in place, and the homeowner loan sits alongside it as a separate agreement.
Repayments are made monthly over an agreed term. These payments include the amount borrowed, interest and any fees you choose to add to your loan. Depending on the type of loan, your interest rate may be fixed or variable, which can affect how much you repay over time.
Homeowner loans are not without risk. As the loan is secured against your property, it’s important to fully understand the terms and make sure repayments are affordable before proceeding.
How does a homeowner loan work?
A homeowner loan works by using the equity in your property as security. Equity is the difference between the current market value of your home and the amount you still owe on your mortgage. The more equity you have, the more you may be able to borrow.
For example, if your home is worth £250,000 and you have £100,000 remaining on your mortgage, your equity would be £150,000.
If you then wanted to borrow an additional £75,000 through a homeowner loan, your total borrowing would increase to £175,000. This would give you a combined loan to value (LTV) ratio of 70%.
Lenders will look at this figure, along with your income, credit history and overall affordability, to decide whether they can offer you a loan.
If your loan is approved, you will either receive the funds as a lump sum, or if you’re using the loan for debt consolidation, we’ll pay your creditors directly in most cases. You will then repay the loan, with interest, in monthly instalments over an agreed term.
What happens if you move house?
In most cases, the loan will need to be repaid in full when you sell your home. The money from the sale of the property is typically used to pay off the loan. Depending on the lender, additional fees may be applied for paying the loan off early.
If you still need borrowing when you move, you will need to apply for a new loan on the new property (provided a homeowner loan still makes financial sense for you).
It’s important to think ahead if you may move home during the loan term. Selling your property early could affect how you manage the remaining balance, so make sure you understand the terms before you commit.
What can a homeowner loan be used for?
Homeowner loans may be used for a wide range of purposes. Because they typically allow you to borrow more money, they are often used for large expenses or purchases.
Some of the most common uses include:
- Home improvements or renovations
- Debt consolidation
- Purchasing a new car
- Funding a major life event (such as a wedding)
- Covering unexpected expenses
No matter your intended use of the loan, it’s important to borrow responsibly. You should always consider whether the repayments are affordable over the full term.
If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
Is a homeowner loan right for you?
Ultimately, it’s up to you whether you think taking out a homeowner loan is going to benefit you in the long run. It’s a high risk way to borrow money, so you shouldn’t rush into making a decision.
A homeowner loan could be suitable if:
- You’re confident you can meet the repayments
- You have sufficient equity in your property
- You need to borrow up to £105,000
It might not be the best option if:
- You’re unsure about affording repayments
- The total cost of borrowing is too high
- You only need to borrow a small amount
- You don’t have enough equity in your property
What are the alternatives to a homeowner loan?
Homeowner loans aren’t for everyone. Depending on your situation, you may want to consider one of these alternative options:
- Unsecured personal loans: These don’t require your home as security. However, they may come with higher interest rates.
- Credit cards: Suitable for smaller amounts, but interest rates could be high if not repaid quickly.
- Remortgaging: You may be able to borrow more by increasing your existing mortgage.
- Budgeting and saving: In some cases, delaying your plans and saving may help you avoid borrowing altogether.
- Debt advice services: If you’re struggling financially, free and independent advice is available from organisations like MoneyHelper, StepChange and National Debtline.
See if you’re eligible for a homeowner loan with Evolution Money
At Evolution Money, we offer homeowner loans from £5,000 to £105,000. You must be a UK homeowner aged 21 to 70 to meet our criteria.
Check your eligibility or get in touch for more information on secured homeowner loans.
All loans are subject to status and eligibility. Available to UK homeowners aged 21 or over. Terms and conditions apply. Not all applicants will be accepted.
Don’t rush into securing a loan against your home. Falling behind on mortgage or secured loan repayments may put your home at risk of repossession.
Representative 17.46% APRC (Variable)
For a typical loan of £23,120 over 120 months with a variable interest rate of 17.46% per annum, your monthly repayments would be £442.07. This includes a Product Fee of £2,312.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £53,047.80. Annual Interest Rates range between 8.6% to 27.87% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
