Having spent years striving to pay off my mortgage, the last thing I wanted to do was borrow more money against my home. But when I needed a short term loan, my property seemed to be all anyone was interested in. There was no doubt it was my chief asset and banks seemed to be willing to lend me vast amounts of money against it. Of course I did my research first, and I listened carefully to all the advice that was offered, but ultimately it seemed that home owner loans were by far the easiest to arrange.

An unsecured loan might have been a more desirable option as it would not entail putting the family home at risk. However I was told that in this uncertain economic climate, many lenders were insisting on a ‘charging order’ which effectively secures the property against the loan. This might not lead to automatic repossession if I defaulted on payments, but it still used the house as security and, should we have to sell, would automatically give them first claim.

Setting up secured loans is a costly process for lenders and they prefer long-term repayment options to offset these initial costs – usually 5 to 20 years. Unsecured loans are much stricter in their repayment times; lenders are usually reluctant to sign up for more than seven years and generally prefer three to five years. Taking out a loan over a longer period will reduce the monthly repayments, but it will considerably increase the total interest repaid. Knowing this helped me to focus on essentials.

The first thing was to be strict with myself about the amount to be borrowed and not to ask for a penny more. Unsecured loans, when they can be found in these difficult economic times, normally have an upper limit of £25,000 whereas secured loans can go up to as much as £75,000. Because of this it seems all too easy to add a few thousand extra for a holiday or other non-essentials. What I had to remember was that the more I borrowed, the more I would have to repay.

The interest rate was something I had to think seriously about. With an unsecured loan, interest rates can be fixed for the duration of the loan, as this is only a few years. However, with long term secured loans, the rates will fluctuate with the base rate and changes in lenders’ policies. Interest rates may be low at the moment but we all know how quickly these can change and in five or ten years I could be paying considerably more.

My wife, being the eternal optimist, was convinced we would win the lottery or something and be able to write off our debt overnight. I had to point out that in such an unlikely event, we would probably have to pay even more! This is because secured loans usually include ‘redemption penalties’ to deter you from paying off your loan early. In fact we could end up being fined if we tried to do so!

We never know when our circumstances will change and we suddenly find ourselves in need of a loan. What we can do to make things easier for ourselves, however, is to take care of our credit rating. This is affected by such small and things as overlooking payments on our credit cards, opening and closing accounts, moving around and leaving small debts behind and other easily avoidable things. Keeping a good credit rating will make life easier in the future.

When we first discussed taking out a loan, we had not given the subject the serious thought it deserves. Had we got into serious debt, we would have found out a great deal more on the subject from professional and free debt counselling, but our situation was slightly different. I did, however, find some excellent advice online about both unsecured and secured loans, which prevented me from making any serious mistakes.

Author Bio: Joyce Stewart is a freelance writer who has recently took out a homeowner loan. She recommends that for secured loans or homeowner loans, that you look on the internet for some great deals.

Category: Finances
Keywords: secured loans,homeowner loans