When looking for finance, being a home owner has many benefits. There are
loans specially designed for home owners that use the property as collateral to secure the loan, but home owners can also get better deals on unsecured loans. Both types of loans are explained in this article.
Home Loans, Refinance Mortgage And Home Equity Loans
These are secured loans, the property guarantees the loan and the creditor can rest assured that if you fail to make the monthly payments he can recover his money by means of the legal action of repossession. But, on the other side, the borrower will enjoy a much cheaper loan because the interest rates charged for secured loans are significantly lower than those of unsecured loans.
Home loans, also known as mortgage loans, are usually employed for purchasing a new home. Nevertheless, a mortgage loan can also be requested against a property you already own as long as it does not have other mortgages and can also be used for making home improvements or other purposes.
A refinance mortgage loan is a loan you request in order to repay a previous mortgage loan. The new mortgage replaces the previous one and the new loan is guaranteed with the same property. Refinancing can save you money if the new loan comes with lower interest rates or can make monthly payments more bearable if the repayment program is extended.
Home equity loans are secured personal loans that can be used for any purpose. The guarantee for these loans is not the whole property but the difference between the market value of the property and the remaining mortgage debt. This amount is called equity and determines the maximum amount of money you can request. There are however some lenders that offer a 135% finance combining the mortgage loan and the home equity loan.
Unsecured Personal Loans
As opposed to the previous loans,
unsecured personal loans are not guaranteed by any asset. Since they require no collateral, these loans are the only option for tenants and non-homeowners. They usually come with higher interest rates, smaller loan amounts and shorter repayment programs. However, since they are the only option for those who do not own a property, they are widely available.
You may wonder why a home-owner would want to request an unsecured loan. The reasons are quite simple: Unsecured personal loans have no risk of repossession. Since there is no collateral, there is no legal action against a particular asset. The creditor has to take legal action directly against the debtor which takes a lot longer.
Moreover, since approval, loan amount, interest rate, and loan length are determined by the debtor’s credit when it comes to unsecured loans, home-owners can get much better deals on these loans than non-homeowners. The applicant’s assets are part of his overall credit worthiness and thus, the loan amount he will be able to request can easily reach the value of his property or even more. Similarly, the interest rate will be lower and the repayment program more flexible because, though not directly, the property will still be guaranteeing the loan along with all the debtor’s assets.
