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How to borrow against your home

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Owning a property is a great financial asset to have, but with the money tied up in the value of your home, it’s not always easy to have access to the physical cash if you needed it for home improvements for example.

However, if you are looking to borrow money and don’t want to remortgage your home, then a secured loan may be an alternative option.

So how does it work?

Benefits of a secured loan

Whilst choosing to borrow against your home is certainly a big commitment to make, secured loans can come with a number of benefits, such as:

Cheaper borrowing

Secured loans often come with low rates because the lender has collateral for the loan in the shape of your home.  The fact that the loan is paid off over quite a long time means that repayments are often more affordable than you think – however make sure you work out the charges over the lifetime of the secured loan.  Whilst rates may be lower than a personal loan, paying it off over a longer duration could mean that you pay more in total.

Borrow larger amounts

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Under current UK legislation, the maximum amount you can borrow on a personal, unsecured loan is £25,000.  These rules do not cover secured loans so if you are looking to borrow a significant amount of money, then this may be your only option.  How much you are able to borrow will depend on a number of factors, such as affordability (i.e. your ability to repay the loan), your credit rating and the amount of equity that is in your property.

Poor credit borrowing

If you are struggling to be accepted for a personal loan, then you may find that you have more success applying for a secured loan.  By offering your property as security, this removes the main element of risk to the lender, so they are less likely to be bothered about your poor credit history.

Whilst this may sound like an attractive option, it is not without its risks. If your poor credit rating is due to you having had difficulties with managing money in the past, you’ll need to seriously consider whether or not a secured loan is the best option for you.

Risks of a secured loan

A secured loan is taken on separately to your mortgage – your property is used as collateral which means that you are offering your home as security to the lender. If you fail to make the repayments on time, then you could face having your home repossessed in order to pay off the loan so it does come with significant risk.

No need to remortgage

If you have enough equity built up in your home, then you may be able to release some of this by remortgaging.  However, this may not always be the best option for you – especially if you are currently on a great rate or would face a hefty penalty fee to come out of your deal early, so taking out a secured loan in addition to your mortgage may be more cost-effective.

What else do I need to consider before taking on a secured loan?

With the risk involved, you’ll need to be confident that you can afford to repay the secured loan, not just in the short term but also in the future, particularly if you will be paying it back over a number of years.

You may want to consider some form of income protection insurance which will offer you protection if you were no longer able to work due to illness or injury – which of course could result in your inability to pay back the loan.

Getting the best deal

If you have decided that a secured loan is for you, then it’s important to make sure you get a great deal on your borrowing.   Work out exactly how much you need to borrow and try to find a loan with the lowest interest rate possible in order to keep costs down to a minimum.

You can compare the latest secured loan deals here

The above post is intended to be informative but does not constitute advice – financial, legal or otherwise. Any opinions given are the author’s own and do not necessarily reflect the views of SO Media.


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