Cheap Secured Loans for Home Owners

When my son found himself in serious difficulties abroad last year

, I needed to find 40,000 very quickly to help him out. My savings were not great, so I approached the bank to enquire about home owner loans, which are secured loans against your house and payable over a long term. I had very little time to consider alternative ways of raising such an amount of money, but I did get some advice from friends first.

I was interested in an unsecured loan at first. This seemed a better option because it would allow me to borrow money without having to put up my house as security. When I started to enquire about this type of loan, I was told that most lenders would insist on a charging order' against my property. Although this would not necessarily lead to repossession, it would give the right to claim against the sale of my house if I could not keep up the payments.

Unsecured loans have much shorter repayment terms than secured loans - usually a maximum of seven years; whereas secured loans allow much longer. In fact because of the costs of setting up secured loans for lenders, they actually prefer these to be long-term - anything up to twenty years. Longer repayment times mean smaller monthly payments, but they also mean considerably more in total interest charged.

The problem with an unsecured loan, even if had managed to arrange one, was that the maximum I could borrow was 25,000, which was just over half the sum I needed. As secured loans can go up to 75,000, this was my only option. I did consider adding on a few extra thousand, in case of emergencies, but decided against this on further consideration. If I found I didn't need the extra, I would still end up paying the extra interest.

There is another important difference between unsecured and secured loans. Because unsecured loans have a shorter repayment span, there is a fixed rate of interest on them for their duration. However the interest on secured loans is often variable and can go up or down according to the base rate and the terms of the lender, making them a variable rate debt. What might sound like an attractive rate today may not be so attractive in five or ten years' time.

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 might have found getting an unsecured loan much easier if we had taken more care to improve our credit rating in the past. I was surprised by how many minor things you can do to help this. Missed (or late) credit card repayments was one such thing we could have avoided. Switching and closing bank accounts and credit cards was another. Your credit score is like housekeeping or car maintenance - if you keep it clean and tidy, it works better for you.

Taking out a loan should never be considered an easy option. It is a serious matter and should be given a good deal of thought. There are debt counsellors available who offer free personal advice and information about the best way forward if you find yourself struggling with debt. There are also excellent internet advice sites and it is always worthwhile doing your homework and checking out all avenues before embarking on a loan that could put your home at risk.

Cheap Secured Loans for Home Owners

By: John Gray

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