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Simon Nicholson

Written by Simon Nicholson on October 4, 2019

Updated October 21, 2019

Homeowner Loans

Many property owners find themselves thinking about applying for a loan, whether it is to fund home improvements, make a large purchase, or to consolidate existing debts. When it comes to finding a loan, there are so many options available to you, and homeowner loans are one of the most popular.

If you are considering a homeowner loan, it is vital that you properly understand what they are and how they work before you decide to apply. This guide covers everything you need to know about homeowner loans as well as some expert tips from our financial specialists.

What Is A Homeowner Loan?

Homeowner loans are also commonly known as secured loans or equity loans, and they are a type of borrowing against a property that is separate from a mortgage. They are available to homeowners who either own their home outright or currently have a mortgage with some equity. This is because the property is used as security against the loan amount and means that if repayments are not made, then your home could be at risk of being repossessed.

This type of loan is designed for borrowing large amounts of money, typically between £3,000 and £500,000 depending on your requirements and equity value. You will not be able to borrow more than the equity being used as security is worth. Homeowner loans are typically used to release money from a property for home improvements, debt consolidation or other large investments.

Choosing to take out a homeowner loan is a huge decision that can put your home at risk. Carefully consider all your options and only choose a homeowner loan if you are confident you can afford to make all the repayments. If you cannot make your repayments or miss them, then the lender is well within their right to repossess your home.

How Does A Homeowner Loan Work?

If you decide to apply for a homeowner loan, the lender you are applying with will evaluate the value of your property in order to determine how much they could lend to you. The loan amount will be agreed by both you and the loan lender, and it will need to be paid back within an agreed time frame.

The duration of a homeowner loan is typically between 1 and 35 years, making them a popular choice for those looking for long term borrowing. Not only will you need to pay back the loan amount in this agreed time frame, but you will also need to pay back interest on the loan amount.

A homeowner loan is secured against your property. If for any reason you miss your repayments and default on the loan, then the lender can sell your home in order to cover the loan amount. There are various types of property that can be used as security including bungalows, houses, flats and cottages.

The amount you can borrow doesn’t only depend on the value of the property or equity, but also your current financial situation is taken into account. Lenders will look at your credit record and income in order to determine the loan amount they can offer.

Homeowner loans are often a realistic option for those with a poor credit history, as they use a property as security, making them less risky to lenders. This means that lenders are more likely to be willing to lend to someone with poor credit as they have a form of guarantee. Like most mortgage lenders secured loans are also available to the self employed and are happy to accept proof of income such as business accounts and sa302 documents from HMRC.

How Much Does A Homeowner Loan Cost?

There are various costs involved in taking out a homeowner loan, and they should be carefully considered to help you decide if it is an affordable option for you:

Interest Rates

All homeowner loans will have some interest charged on the loan amount and for the loan duration. It is often automatically added to your loan repayments and the rates offered will vary significantly between lenders. There are two types of interest that you could be offered:

  • Fixed Interest Rates: Homeowner loans with fixed interest rates will stay the same throughout the duration of the loan. The initial rate could be slightly higher than other options, to begin with, but they guarantee you the same rate for the entire length of the loan. This can make budgeting easier, as it is likely that the monthly repayments will stay the same.
  • Variable Interest Rates: Loans with variable interest rates will change over time. They often start off as a low rate but will increase over time and can mean that monthly repayments change. The majority of lenders offer variable rates and fixed rates are often much less common.


In addition to the interest rates on the homeowner loan itself, there are also various fees that could be charged by lenders. Not every lender will charge these fees, however, it is important to check before applying as these can significantly raise the cost of your loan. Whenever you speak to a lender or broker about the price of a loan from them, always make sure to ask for a full breakdown so you can see exactly where your money might be going. Some fees to look out for are:

  • Valuation Fees: These cover the costs of a valuation on the property. Some lenders may not require a valuation at all, but others may insist on knowing the current property value before offering a loan.
  • Legal Fees: Some homeowner loans have various legal fees involved; this can include documentation or fees to cover the time of a legal professional if required.
  • Disbursement Fees: These fees could cover costs such as land registry searches, or any other searches a lender feels are necessary on the property.
  • Broker Fees: If you chose to use a secured loan broker to find your homeowner loan, then you will also have to pay broker fees. Many brokers will add their fees onto the loan amount.

There are various checks and processes that must be done when applying for a homeowner loan. This includes checking your credit file, income, payslips, the housing registry, and confirming the property value and equity owned. Due to these checks, applying for a homeowner loan can take between three to five weeks before any funds are released.

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Think carefully before securing other debts against your home.
Your home may be repossessed if you do not keep up repayments on a loan or any other debt secured on it.

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