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forms of loans are unsecured and secured.
Unsecured
loans, as the names makes more than clear, require no form
of security whatsoever , and as such are available to both
those who do not own their own property, that is, tenants,
and also to homeowners.
Even at
the best of times that is pre credit crunch unsecured loans
were difficult for tenants to obtain, as being completely
unsecured, the lender was taking a risk that he could lose
the money advanced in the case of the tenant defaulting.
For homeowners
unsecured loans were slightly easier to obtain, although the
maximum loan was normally restricted to around £15,000
which is often not an adequate amount if the loan is required
to fund a major purchase such as a motor home, or to pay for
substantial home improvements such as a conservatory, an extension,
and a swimming pool and so on.
Tenants
have no option but the unsecured loan but for homeowners the
situation is very different as they also have the choice of
homeowner loans.
Homeowner
loans are only available to homeowners and they are an excellent
way to fund almost anything. Homeowner loans are also called
secured loans as they are secured on the equity of the property.
Unlike
before the recession, homeowners cannot obtain a secured homeowner
loan if there is no equity on the property. Equity is the
difference between the value of the property and the balance
left on the mortgage.
To give
an example of the above, if a property is worth £200,000
and the mortgage is £190,000 the equity is in fact £10,000.
Equity margins have been restricted nowadays and secured loans
are only available at a maximum of 80% and 70% for employed
and self employed borrowers respectively.
If a property
is worth £300,000 and the mortgage balance is £200,000,
the maximum available homeowner loan would be £40,000
if the applicant is employed and £10,000 for a self
employed borrower.
Before
the credit crunch 125% equity plans were available but only
to employed borrowers with a good credit rating, and in those
golden days of yore if a property was valued at £200,000
and the mortgage outstanding was £190,000 homeowner
loans of up to a maximum of £60,000 were available.
Unsecured
loans are more expensive than secured loans and homeowner
loans have interest rates commencing at around the 9% mark.
As these
loans are secured, lenders are not concerned about and never
require proof of the purpose of the loan, unlike with unsecured
loans.
If a loan
is unsecured the loan granter always requires proof of what
the loan is going to be used for. He will always need proof
of loan purpose in the form of bills, estimates and so on.
With homeowner
loans it is only a matter of stating the purpose for the loan
on the application form and no proof will be asked for, making
this a simple way to borrow money.
With secured
homeowner loans you will have cash in hand to obtain the best
possible deal whether it is when buying a car, doing home
improvements, etc.
One of
the most common reasons for obtaining a homeowner loan is
to consolidate credit cards, personal loans and hire purchase.
With the interest rate for secured homeowner loans being so
much lower than credit cards, etc. there are massive savings
to be made, and in addition to saving money the homeowner
will have only one payment to make each month compared to
several making finances easier to handle.
The only
really sensible way for a homeowner to obtain a loan is via
the secured homeowner route and these loans can be used for
any legitimate reason.
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