A homeowner loan is a type of loan that has become increasingly popular as a result of property prices within the US rocketing over recent years, and homeowners enjoying increased levels of equity in their homes. Homeowner loan provide an effective and affordable borrowing solution for many homeowners, but you still have to give careful consideration to taking out this type of loan.
There are a number of things to consider when you are thinking of taking out a homeowner loan and this includes:
Can you afford the loan?
If you cannot keep up with repayments on a homeowner loan and you default on your repayments you may risk losing your home, as these loans are secured against your home. You must therefore ensure that you can comfortably afford repayments and can cope with any rises in interest rates and repayments.
Can you afford the risk of falling into negative equity?
If you take put a homeowner loan secured against the equity in your home then you may find that you fall into negative equity in the event that house prices fall, and this is something that you should bear in mind when taking out this type of loan.
How much are you looking to borrow?
You need to consider how much you need to borrow, as different lenders offer different borrowing levels. For example, some will offer up to a percentage of your equity, some will offer the full amount of your equity, and some will offer over and above your equity levels.
How long do you wish to repay over?
The longer the repayment period that you choose for your homeowner loan the less you will pay each month but the more interest you will pay over the term of the loan. You therefore need to weigh up the pros and cons and determine what sort of repayment period you want to look at.
What will you use the loan for?
Homeowner loans can be used for one of a range of purposes, but some will benefit you more than others. For example, you could use the loan for something such as a luxury holiday or a new car, but you could also use the loan for home improvements, which can add value to your home, or debt consolidation, which can save you money on a monthly basis and interest over the longer term.
Do you have bad credit?
If you have bad credit you still stand a better chance of getting a homeowner loan over an unsecured loan, but you will pay a higher rate of interest than someone with decent credit, so you need to decide whether you can afford this higher interest rate and the repayments attached to it.
Which lender should you use?
There are many lenders that offer homeowner loans, and you need to compare the different products available from a range of lenders in order to determine which offers the best deal for your needs, circumstances, and pocket.
Should you use a broker?
There are a number of experienced brokers that deal with homeowner loans, and for some people – particularly those with bad credit that cannot afford to keep making applications in case it further damages their credit – using a broker could be the most effective option.
Where should you look for a homeowner loan?
There are a number of avenues that you can take, from visiting your local bank or lender to ringing around to compare quotes and prices. The easiest and most convenient option is to look online, where you will enjoy a choice of lenders offering an array of competitive deals on homeowner loans.
Are there any charges and penalties to consider?
Some homeowner loans involve set up fees, and you should familiarize yourself with these. Some will also involve early redemption fees, and if you are looking to settle your loan early if you can you should also take these into consideration.