Homeowner loans: what you need to know

If you're a homeowner with a mortgage and have built up equity in your property, a homeowner loan may allow you to borrow more than is typically available with an unsecured personal loan.

Homeowner loans are commonly used for home improvements, debt consolidation and other major expenses. Before applying, it's important to understand how they work, the risks involved and the costs you may need to pay.

What is a homeowner loan?

A homeowner loan is a type of secured loan that uses your home as security for the borrowing.

The amount you may be able to borrow will depend on factors such as:

• the value of your property
• how much equity you have in your home
• your income and financial circumstances
• your credit history

As with any form of borrowing, lenders will assess affordability before deciding whether to offer you a loan.

Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Why do people take out homeowner loans?

Home improvements

Some homeowners use homeowner loans to help fund projects such as extensions, loft conversions, new kitchens or energy-efficiency improvements.

Debt consolidation

A homeowner loan can be used to combine existing borrowing into a single monthly repayment. However, consolidating debt may increase the amount paid overall if the repayment term is extended.

Major expenses

Some people use homeowner loans to fund larger planned expenses, such as weddings or other significant purchases.

How does a homeowner loan work?

When you take out a homeowner loan, you borrow an agreed amount and repay it through monthly repayments over a set term.

The lender places a legal charge against your property while the loan is in place. Once the loan has been repaid in full, the charge is removed.

Repayment terms on homeowner loans can often be longer than those available on unsecured loans. While this may reduce monthly repayments, it can increase the total amount of interest paid over the life of the loan.

Homeowner loan vs personal loan

Both homeowner loans and personal loans can be used for similar purposes, but there are some important differences.

A homeowner loan:

uses your home as security

• may allow larger borrowing amounts
• often has longer repayment terms
• may have different interest rates from unsecured borrowing

A personal loan:

• is not secured against your home
• is typically used for smaller borrowing amounts
• usually has shorter repayment terms
• may be quicker to arrange

The features, costs and eligibility requirements vary between lenders and products.

Important things to consider

Your home is security

If you do not keep up with repayments, your lender may take action to recover the debt, which could result in your home being repossessed.

Longer repayment terms can cost more

Although longer terms can reduce monthly repayments, they may increase the total amount repayable over the life of the loan.

Borrow only what you need

Carefully consider how much you need to borrow and whether the borrowing remains affordable both now and in the future.

Summary

Homeowner loans can provide access to larger borrowing amounts and longer repayment terms because the borrowing is secured against your property. Before applying, make sure you understand the costs and risks involved, including the possibility of your home being repossessed if you do not keep up repayments.

How Loans from Co-op could help

If you're a homeowner with a mortgage, Loans from Co-op, powered by our partner ClearScore, can help you compare homeowner loan products from a panel of lenders. You can review available products, compare key features and costs, and check whether you may be eligible to apply. Eligibility criteria and lending decisions are determined by individual lenders.

Compare loans online without affecting your credit score.