Secured Loans
Secured loans are an arranged borrowing with a financial institution such as a bank or building society, that is secured against the value of your home.
Secured loans can also be known as a second mortgage or second charge loan because it is a 'second charge' on top of your 'first charge' ie: your mortgage. It can also be referred to as an equity loan due to the fact it is a loan taken out against the equity (value) of the borrower's home. Therefore secured loans can only be taken out by a person who is classed as a homeowner. Homeowner loans are the same as secured loans.
A secured loan is secured on your house. Not only does this give you an incentive to pay off the loan on time, but it also gives the lender additional security so if you default on your repayments, they have not lost all the money they loaned you.
This creates great advantages to taking out a secured loan against the value of your property is that you can generally have a longer repayment period than with an unsecured loan. This can be for the remainder of the mortgage term if you are borrowing a large amount ie: over a period of 25 years.
Because the risk to the lender is much lower than if you had taken out an unsecured loan, you will get lower interest rates on the amount of money borrowed, reducing your overall repayment.
This is why you have to think very carefully before taking out a secured loan because if you cannot keep up with your repayments your house may be repossessed in order for the lender to sell the property and reclaim the money you owe them.
The equity in your home is the current value minus the outstanding balance of the mortgage you first took out. For example, If your house was worth £150,000 and your current mortgage was £100,000 the equity in your home would be £50,000.
Most lenders will offer secured loans of between £5,000 and £250,000. The maximum LTV (Loan To Value) is typically 125% of your property's value although this is dependent on your individual circumstances. A secured loan leads to a lower interest rate than an unsecured loan. Second charge loans are taken out over a period ranging from 5 to 30 years depending on the lender and the borrower.
Arrangement Times For Secured Loans
A secured loan can take between 2-6 weeks to process depending on how quickly you can provide all the information that a lender needs. Generally you will get a decision in principle within 24 hours of receiving all the paperwork.
Secured Loan Purposes
So why would people want to take out a secured loan? A homeowner loan can be taken out for many reasons. It can be used to pay for a wedding or honeymoon, the purchase of a new car or caravan or maybe you want to do some home improvements such as a loft conversion, an extension, a new kitchen or build a conservatory.
Secured Loans Release Equity
Many people want to use the equity remaining in their homes to enjoy life more, especially more mature homeowners if they have recently retired. The extra money can be used for weekends away, a cruise, a second holiday home or maybe they want to treat their family.
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