Some loans are reserved exclusively for homeowners. In some cases, having your own property can vastly reduce the cost of borrowing.
The term homeowner loan has traditionally been used to describe a debt that is secured on your property, meaning if you miss payments you could lose your house or flat.
However, some lenders make their less risky personal loans, where your property is not normally at risk, available to homeowners only, which has added a new dimension to the term.
Homeowner loans, in their traditional form, are usually available for large sums, usually up to £50,000, but sometimes even higher. They are payable back for any time up to 25 years.
Yet the reason lenders can offer such large amounts and allow you to pay them back over a long period, which means monthly payments can be low, is because they have the security of your home as back-up. This, therefore, makes them risky to consumers if you miss payments so only take one out if you’re sure you can afford it.
These homeowner loans, if paid back over a long period, such as 25 years, can also be expensive. That’s because, even where an attractive rate is on offer, the longer the debt is outstanding, the longer you’re being charged interest.
To highlight this, a £50,000 loan at 5% interest over 10 years would cost £13,600 in interest, compared to £37,600 over 25 years.
Yet, for those who can afford them, they can offer a lifeline if you cannot borrow money elsewhere,
Even if you want a secured loan, they are not always available during times of economic difficulty. In fact, during the credit crunch of the late noughties, most of the major secured loan lenders pulled out of the market.
It was also during the credit crunch that banks and building societies made some of their cheaper personal loans available to homeowners only, while offering their more expensive personal loans to anyone else.
At times when lenders are more selective in who they lend to, in order to avoid attracting borrowers more likely to miss payments, they often see those who own their own home as more trustworthy, as long as they have a record of meeting mortgage and other debt repayments.
Therefore, personal loans for homeowners only can significantly reduce the cost of borrowing.
For instance, using a snapshot example of available deals at time of writing, a £5,000 personal loan at 7% annual interest, available to homeowners only, over three years, would cost roughly £550 in interest over the term.
The same loan at 10%, available to anyone, would cost around £800 in interest.
Mortgages, to fund the purchase of a property, are also sometimes referred to as homeowner loans.