Wednesday, June 24, 2009

Introducing The Two Types Of Homeowner Loans

Homeowner loans generally come in one of two varieties. The vast majority of new home buyers obtain a primary mortgage, or first loan at the point of purchase. As most home buyers do not have the cash required to pay the full amount of the purchase price of a home, financing is obtained. Even for those that do have available cash, financing is often used as the low interest rate tied to secured loans makes it a good way to borrower money. By obtaining a mortgage, the home buyer is giving a lien on the property to the lender in exchange for the loan.

Another common type of homeowner loan, and often the more often referenced form or the two, is second charges, or a loan obtained based on the equity and value of the home. Many existing homeowners turn to homeowner loans as a low rate financing option. Loans are commonly used to fund home expansions, renovations and repairs, vacations, business startups, and other major expenses. Similar to first mortgages, since the property is offered as collateral to the bank in exchange for the loan, homeowner loans are usually available in higher amounts, at better terms, and with lower interest rates.

There are certainly risks associated with homeowner loans. Because the property is offered as collateral in order to secure the loan, the borrower could lose the property if he fails to meet the loan repayment terms and obligations. Despite of this risk, many borrowers opt for the lower rates and more flexible terms associated with homeowner loans. Borrowers with bad credit often do not even have a choice. Many banks require borrowers with bad credit to secure financing with a property.

Another popular and growing use of secured loans is debt consolidation. Revolving debt and credit card debt are on the rise in the UK. As more and more borrowers become burned by high interest debt and multiple creditors, lenders are promoting homeowner loans as a form of debt consolidation. This offers many benefits, especially for borrowers that do have good credit, thus more leverage with lenders. Borrowers can sometimes take debt with multiple creditors at significantly high interest rates, and pay it off with one lump sum secured loan. This reduces the hassle of managing relationships with many creditors and it can also save the borrower significant interest, and even reduce the length of repayment on the debt.

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