From the perspective of any lender, the amount of risk involved in making a loan is related to how much they may need to charge. Typically, the lower they see the risks to be, the more cost-attractive they may be able to make it – and that is where homeowner loans come in.
If you own property, including if you have a mortgage, this may be interpreted by a potential lender as indicating two things:
- you have a degree of financial responsibility and standing;
- you have an asset (your property) that you may wish to use as security if you apply for secured loans.
Those two things may prove to be very beneficial to you if you need a loan, as they mean that you’ll be able to borrow larger sums and at more attractive rates. In fact, there is a class of loans for people in this category and they’re called homeowner loans.
In such a loan, you’ll offer your property as security against the amount you’re borrowing. This means that if you defaulted on the amount, the lender would be able to try and recover their money by forcing the sale of your home and taking their sums due from the proceeds.
Of course, if you continue an orderly repayment of the loan in line with the agreement, your home is safe and could not be touched.
The attraction of this for lenders is simple. It means that the loan proposition is less risky for them and that may in turn, allow them to provide both easier access to finance and at more interesting prices.
You may be able to use your property as security for a loan even in situations where it is jointly owned – providing that the co-owner is agreeable and willing to enter into a legally binding agreement. You will also need to have sufficient equity (the sum left after you deduct any mortgage from the market value of your property) to cover the loan requested.
Homeowner loans may be very useful in situations where you need to raise capital for a project or home improvement etc. It might be worth finding out more.