By Kevin Smith

The first thing to get straight in our minds is what we mean by the term secured loans. It may be obvious to some but if you’ve never had to even think about such things it may be less clear. If someone like a bank or similar institution lends you some money there are, broadly speaking, two ways they might do it. One is to just take into account all they know or can find out about you rely on their judgement as to whether they’ll get their money back as agreed. That’s a personal loan. On the other hand what they may do, especially for a larger loan, in addition to gathering all that information is get you to enter into a contract which gives them the right to assume ownership of something of yours that’s worth substantially more than the loan if you don’t pay it back. That’s called a secured loan and the item of property they normally take as security is your home. That’s actually not as worrying as it sounds although it is something you have to remember at all times. Your mortgage is a perfect example of a secured loan. Any secured loans you take up after that are often known as second charges or second mortgages.

So the first thing to consider is that secured loans are normally only available to you if you own your own home. If you have a mortgage on it already like most of us the amount you could borrow on a secured loan will depend on what you’re left with if you take the agreed value of the house and take away the balance owed on the mortgage. What’s left is called the equity and you’ll usually be able to borrow up to a certain percentage of that. What percentage will be set by the lender and is subject to all the other considerations like your income and track record.

So what are the pros and cons of secured loans and are they right for you? Well to take the good news first, a loan secured on your property is going to be cheaper in terms of interest than a personal loan. Because the lender has the added security of a charge on your house his money is less at risk so he won’t feel the need to charge quite so much in interest. In fact the cheapest form of secured loan is always going to be a further advance on your existing mortgage if you can get it because your lender already knows more about you than you do or so it seems and you’re already on their books. You should always try that first.

If you don’t want to go to your existing lender or maybe the purpose you want the loan for doesn’t fit their rules then secured loans from other sources will be what you’re looking at for the more substantial amounts.

So we’ve established that secured loans can carry lower interest charges. What else is good? Well you can usually borrow larger sums this way than you can by personal loan. More often than not you can get a much longer repayment term than you could with a personal loan. Not usually as long as your first mortgage but not that far short if you want it. That means of course that for a given amount borrowed your monthly payments will be less and that of course is a good argument for going down this route.

OK that all sounds pretty good so what’s the catch? Well the main drawback is the fact that if you don’t keep up the repayments you’ll probably have your home re-possessed. Actually if you’ve got your sums right at the beginning that’s unlikely to happen unless you become unemployed or your health fails and you can’t work for a long time. The same applies to your first mortgage of course so you take out insurance to cover against these misfortunes don’t you? Well you can do the same with your second or third mortgage and you should do so of course.

It can take longer to set up a loan secured on your property and there will be legal fees and set up charges. However these can often be added to the loan so you don’t have to pay them up front. Even with these costs it’s probably still cheaper than a personal loan.

There are lots of lenders competing for your business and some may pay the set up costs for you. Your best bet is to consult an expert. You can’t beat getting a mortgage broker, such as The Home Loan Shop for example, to find you the deal that gives you the best value for money.




Submitted By kevin123

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