SECURED LOAN

What is a Secured Loan?

Secured loans are loans that require the borrower to provide the lender with some form of security or collateral. In this case the security you provide will be your home whether it is mortgaged or owned outright.

The first loan you take out that is secured against your home is known as the first charge on you property. If you take out a second loan against your home this is known as the second charge or second mortgage. The first charge will normally be the mortgage you originally obtained to buy your home.

First charges always take priority over second charges, so that if you default on your repayments and your home has to be sold by your lenders to get their money back the first charge will be paid off before the second charge. Thus a lender who provides secured loans or second mortgages could be more at risk if the borrower defaults.

Confused? Well you’re probably not the first and definitely not the last.

The simple way of looking at this is to remember that if you already have a mortgage on your home and you want to borrow more money using your home as security then a secured home loan or second mortgage will do that for you. More importantly in certain circumstances they can be more effective or quicker than changing your existing mortgage.

If you want to know more about secured loans just give us a call.

One of our specialist brokers will call and help you. Their advice is free, impartial and professional.

Talk to one of their expert financial advisers now to get the low down and some great deals on secured loans.

What is the Difference between a Mortgage and Secured Loan?

First of all, they are in fact very similar as they are both loans that use your home as security. In both cases you can borrow amounts above £25,000 and will have to repay the loan within 25 years.

However, if you only require a smaller amount, a secured loan is also available usually between £5,000 and £25,000. Secured loans under £25,000 are governed by the Consumer Credit Act. Whatever secured loan you have it will have to be paid back by the end of the loan term.

The repayment methods of capital and interest are the same and remember if you default on either loan you could lose you home.

Normally you will get a mortgage as the first loan secured on your home before considering a secured loan, because a first mortgage is one of the cheapest forms of finance available.

However if you wish to release some equity from your property you may find that changing your existing mortgage may be restrictive and expensive or maybe your current credit record will make it difficult or expensive to switch. In this case a secured loan could be a useful alternative and may even be relatively cheap in comparison.

One difference that you need to be aware of is that you will need some equity in your home to get a secured loan. A secured loan can only be obtained up to the value of the equity in your home.

Getting a valuation for the current market value of your home and subtracting what you still owe to your current mortgage lender from that valuation will give you the equity amount.

Before making a decision you really should talk to one of our advisors who will research the pros and cons of your current situation and advise you on the best way forward.

Why a Secured Loan?

This is a good question because the interest rate you pay on a secured loan is likely to be higher than that of your initial mortgage. This is because the lender of the secured loan is more at risk.

The reason for this is that your mortgage is the first charge against your property and therefore your mortgage lender will get their money first if you default, and the lender of any secured loan, which would be the second charge, may find that there are insufficient funds to pay both lenders when they sell your home.

However, there are several situations where considering a secured loan might be a smart move.

Changing you existing mortgage lender to increase your mortgage may mean you have to pay an expensive redemption charge for paying it off early.

Similarly if you have been having some financial problems but need more cash you will find that taking out a new mortgage could be expensive as they might charge you a high interest rate on the whole of your mortgage. If you already have a fairly good interest rate on your current mortgage it would make sense to keep it and take the interest rate hit on the secured loan as this loan is likely to be for a much smaller amount.

You may want a loan just for the short term compared to your existing mortgage and do not want have keep up the repayment on your new loan for such a long time. This could be used to pay off large credit card balance, which will be costing you a lot due to their very high interest charges. The same applies to any other expensive loans you may have.

So what is an Unsecured Loan?

Unsecured loans are simply loans that do not require any form of security for the lender.

An unsecured loan is often referred to as a personal loan by many lenders so you should try and remember that they are in fact exactly the same thing. This type of loan is not necessarily a no credit check loan and if you have bad credit then you may find that a personal loan is difficult to obtain.

Providers of these loans will base their decision to lend to you on your credit situation and previous financial history. Normally the maximum you can borrow will be £25,000 and the loan will have to be paid back within 10 years. But to get a good deal you may have to shop around, as interest rates will vary depending on which finance company or companies you use.

Typical uses for an unsecured personal loan would be a new car, a holiday, home improvements or even to pay off other forms of debt. If you are looking for a low interest rate personal loan you should contact an appropriate lender or broker who supplies these types of loan.

What is an Equity Line of Credit?

A Home Equity Line of Credit or HELOC is a second mortgage or real estate loan secured against your home which is an arrangement that provides an equity credit line for you to borrow from whenever you need to up to an agreed limit. It is basically a line of credit secured by your home and is a very popular lending product in the US, but it is not available in the UK. Another popular US product not available here is the secured credit card that requires the use of a savings account to secure the credit. This information has merely been included to help you ignore these products when searching for mortgage information on the Internet.