Homeowner Loan: Low Broker Fees & Interest Rates

What is a homeowner loan?

A secured homeowner loan is a type of finance that is secured against property and sits behind your existing mortgage.

Homeowner loans are also known as, home loans, a secured loan or a second charge mortgage.

They allow you to borrow a lump sum of money against the equity in either your home or a buy to let property, with a manageable monthly payment.

They are popular because they allow you to borrow more than would be possible using an unsecured loan, with many lenders offering up to £250,000.

The amount you can borrow using a homeowner loan will depend on your property value, current mortgage balance, your income and your chosen lenders affordability criteria.

How do homeowner loans work?

These loans work much like any loan in that they allow you to borrow money in return for regular monthly repayments.

These loans allow you to borrow against the equity in your property, alongside your existing mortgage.They are a form of secured credit, meaning that the loan is secured by legal charge over your property, much like is the case with mortgages.

Secured loans, such as home loans and mortgages allow you to borrow at a lower interest rate than unsecured credit.

What can a homeowner loan be used for?

Homeowner loans can be used for almost any purpose.

They’re commonly used as debt consolidation loans to refinance existing debts such as credit cards, personal loans, store cards and any other types of finance. This allows you to simplify your monthly costs as you will only have to make one payment each month.

Using home improvement loans to give you the cash to refurbish your property is also very common.

Undertaking renovations such as redecoration, extensions, new kitchen and bathroom or a loft conversion can increase the value of your asset, allowing you to make a profit, which can ultimately offset your interest costs.

Who are homeowner loans suitable for?

They’re suitable for homeowners with existing mortgages, who would like to stay with their current lender or are tied in to a low interest rate, and are looking to capital raise. They could work for you if you:

• Are looking to raise funds at a low monthly cost
• Want an alternative to remortgaging
• Want to keep your repayments down through debt consolidation

Ultimately, deciding whether this is the right option for you will depend on a number of factors. Our team can offer advice and a free quote to help you make the right choice.

Our number one goal is to ensure that both the advantages and risks are explained fully to ensure individuals make informed decisions.

Will I qualify for this type of lending?

In order to have your application approved, you will need to provide information to your lender, who will then make a decision based on the risk presented. They will typically look at the following:

• Your income and outgoings – to ensure you can afford the proposed monthly payment. Even if you feel that the payment is affordable, you must still meet the lender's affordability rules.
• Your credit rating – Your credit history is used to check your financial status and how you’ve managed the repayments on other debts.
• The value of your property – As your house, and specifically your home equity acts as collateral for the loan.
• The amount of home equity you have – The value of your property, minus any existing charges.
• Your property is insured - Your lender will expect your property to be properly insured throughout the life of the loan.

What are the advantages and disadvantages of this type of finance?

Here are some of the key advantages and disadvantages:

Advantages

• They can be repaid over a longer repayment term than many other types of finance, often up to 35 years. This allows you to choose a manageable monthly repayment, to reduce the risk of failing to keep up repayments. As a low cost form of lending, it can save borrowers money.
• They come with lower interest rates than other types of finance, such as personal loans, credit cards and or a bridging loan. This makes them ideal for debt consolidation due to the longer loan term and lower interest rates.
• Choose between fixed rate, variable rate or base rate linked products to manage your monthly loan cost.
• You can borrow larger amounts than would be possible using an unsecured loan.

Disadvantages

• The risk of losing your home if you cannot make the repayments.
• If you extend the loan term reduce your monthly repayment cost, you will pay back more money in total through interest and potential fees.
• Many brokers charge high fees for their service – they often cost up to 12.5% of the amount borrowed. When added to the loan, you will also pay interest on this fee, adding to the total cost of borrowing, and it will also eat into your home equity.

What are the alternatives to a homeowner loan?

The alternatives to a homeowner loan are:

• Unsecured loan – An unsecured personal loan allows you to borrow money without using your home equity as security. These loans are a good option for borrowing small amounts (up to £25,000), although they come with a short term (usually up to 5 years), which means the monthly repayments will be higher.
• Remortgaging – Refinancing your mortgage to a new lender may allow you to borrow more money. When considering a remortgage, consider the impact of any early repayment charges, or penalties for switching.
• Interest-free credit card – An interest free credit card can be used to fund a big one-off purchase while offering a 0% interest period. Just make sure to repay the debt or switch to a new 0% deal before the end of your credit cards introductory period, or risk your interest cost rising dramatically.
• Peer to peer (P2P) loan – Peer to peer loans are unsecured loans that are funded by pooling funds from a collection of individuals. They offer a solid alternative to loans offered by banks and building societies.
• Guarantor loan – A guarantor loan allows you to take a loan guaranteed by a family member or friend. They legally promise to pay back the debt if you can’t. These loans are popular with borrowers with a poor credit history who may otherwise fail to meet the criteria for unsecured borrowing.

What is the application process?

The process of applying for a homeowner loan is simple and can be completed, and the funds in your account as a lump sum in as just a few days. The process is as follows:

• Understanding your monthly instalments – The first step is to use a homeowner loan calculator to understand the perfect lump sum, loan term and interest rate that you can comfortably afford.
• Talk to a broker – A good broker will offer a loan quote, and explain the interest rate, potential fees and interest type, such as fixed rate, variable or tracker. If you’re happy with the loan quote, they’ll arrange a decision in principle to ensure your application is likely to be approved. This process takes just a few hours.
• Talk to your current mortgage lender – Talk to your mortgage lender to find out your outstanding balance. Where possible, get an up to date mortgage statement as this is often required by your new loan provider.
• Submit your application – Your broker will fill out the forms and get together any required info, such as proof of income, proof of ID and address and potentially bank statements. The lender will then assess the documents and if they’re happy will issue a formal loan offer.
• Your loan is complete – Once you sign and return your loan offer, the loan application process is complete and you will receive your loan funds, usually as a lump sum into your bank account.

How quickly will I receive my loan?

A homeowner loan can be completed quickly. We can complete a loan application and have the funds in your account in as little as 5 days, although most take around 3-4 weeks.

The time it takes for the money to hit your bank account will depend on whether a valuation of your property is required and how quickly you supply the required documents.

The application process is simple for home equity loans and our expert team can guide you to a quick completion.

What documents are required when I apply?

To apply for secured lending, the following will be required:

• An application form – The application form usually takes around 45 minutes to complete for most clients, although we can usually complete this with you over the phone in around 15 minutes.
• Proof of ID and address – This is usually covered with either a passport or driving licence and a recent utility bill.
• Proof of income – Most lenders require 3 months payslips or last 2 years tax return for self-employed borrowers.
• Bank statements – Most lenders require 3 months bank statements in order to verify your income and assess your account conduct.
• Your most recent mortgage statement – The most recent statement from your mortgage provider is used to verify your home equity, mortgage balance and monthly cost.

If you’re planning to use the funds for home improvements, a brief breakdown of them would also be helpful. As mentioned above, preparing these documents upfront when you apply will greatly speed up the process.

In almost all cases, your loan provider will require these documents at some point, so it will save time if you’re prepared when they request them.

How much do they cost?

The cost varies according to the amount of money you borrow, the loan repayment term, the interest rate charged and the cost of any arrangement fees that are added to the loan when it is set up.

Homeowner loan rates can either be a fixed rate or variable rate. Fixed rate loans mean that your monthly repayment will stay the same even if interest rates change in the wider market.

In addition to the interest charged, you may be faced with other costs. The most common ones are:

• Lender arrangement fee – Also known as a product fee. This is charged by the loan provider as part of their loan pricing. In most cases, this fee can be added to the loan.
• Broker fee – Almost all brokers charge a fee for their service. Most charge very high fees, often thousands of pounds, while we charge a fixed, low broker fee. In most cases, this fee can be added to the loan.
• Early repayment charge – Should you repay your loan within the first couple of years, you may have to pay an early repayment fee, or exit fee to the lender.

As Financial Conduct Authority regulated brokers, our job is to keep your loan costs as low as possible, so we’ll always work to find you the best possible deal.

What should I consider when choosing a homeowner loan?

Whether you’re using a homeowner loan as a debt consolidation loan or a home improvement loan, there are a few important things to consider.

When using secured borrowing to repay existing debts, carefully consider your chosen loan term. Should you choose to extend the term, while your monthly repayments will be lower, the total cost of borrowing (APRC) may increase.

Secondly, securing your loan against your property can put your property at risk of repossession should you fail to keep up your monthly repayments. For this reason, the long term affordability of the loan should be carefully considered. In all cases, the secured loan lender will assess affordability to vastly cut down the chances of the loan becoming unaffordable and check your ability to manage your expenses.

Finally, you should consider the impact of adding fees to your borrowing. Should you add various fees such as broker fees, lender arrangement fees and other charges, you will pay interest on them. This can significantly increase the total cost of your borrowing and mean you pay more interest.

Why choose ABC Finance?

At ABC Finance, we put our customers first – which is why our broker fees are on average £2,880 cheaper than some of our competitors. On a £35,000 loan, we charge a fixed £1,495 fee, while many others charge 12.5% of the loan amount - £4,375.

On top of the great value we offer, we’re fully Financial Conduct Authority (FCA) regulated and have been trading since the year 2000. We’re rated an average of 4.8 out of 5 across TrustPilot, Reviews.co.uk and Google reviews.

We work with lenders across the market so will compare products and secure the best deal for your circumstances.

If you’re looking for low fees, market leading interest rates and great service from an experienced team, get in touch today.

Homeowner loan lenders

Homeowner loan lenders can be broken down into different types, much like other types of loans such as a mortgage or unsecured loan.

The key lender types for home loans are:

• Banks
• Challenger banks
• Specialist products from second charge loan lenders

Unlike the mortgage market, your choice of lender is more limited as there are less loan lenders in the market for loans secured against property. Leading lenders include United Trust Bank, Tandem Bank and Together Money.

What is the difference between a secured homeowner loan and an unsecured loan?

A homeowner loan differs from an unsecured loan in many ways. The key difference is that a homeowner loan is secured against a property, either your main residence or a buy to let property, while an unsecured loan is not.

As a homeowner loan is secured, it allows you to borrow money at a lower interest rate than unsecured lending. Home loans range from £5,000 to £250,000, while personal loans are usually available up to a maximum of £25,000.

Secured lending allows you to extend the loan term, usually up to a maximum of 25 years, which combined with lower interest rates, allow you to borrow money at a lower monthly cost.

Finally, as the lender has security for their loan (a property), it may be easier to borrow money if you have bad credit. This is because the lender will find it easier to get their money back in the event of default as they have a legal charge over the security property

What is the difference between a homeowner loan and a mortgage?

A homeowner loan is very similar to a mortgage, as they are both loans that are secured against the equity in a property.

While a mortgage can be used to purchase or refinance a property, a homeowner secured loan can only be used to release equity from them. Secured loans sit alongside mortgages, allowing you to borrow more money without having to repay your mortgage lender. This makes these loans an attractive loan type for those who have a good deal on their existing mortgage, but want to borrow more money with a new loan.