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There Are Times When A Remortgage Is Less Favourable Than Homeowner Loans

By Liz Moir

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Published: 17Mar2010
Word count: 673
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When a person requires to borrow money, as almost everyone does from time to time, there are a number of financial products from which to choose.

Borrowing money obviously involves taking out a loan of one kind or the other, as loan is the name given when a person borrows from another individual but most commonly from an official lender such as a bank or a building society.

There are two main kinds of loans and these are secured and unsecured ones.

As the name unsecured makes obvious, this type of loan requires no form of security whatever and as such both tenants and homeowners are eligible to apply.

However as loan lenders are taking somewhat of a risk in granting these loans, they are not readily available and particularly to non homeowners.

An unsecured loan applicant would have to be in long term employment with the same company, have a stellar credit history, etc. and even then the interest rate will normally be quite high.

The reason that a homeowner can obtain an unsecured loan more easily than a tenant is because of the fact that if the borrower defaults on repaying his loan, the lender can secure an inhibition on his property which is like a secured decree which is recorded at the Land Registry.

This inhibition means that the lender should receive the loan funds back sooner or later as the defaulter cannot sell his property without first paying off the inhibition.

The other main type of loan is the secured loan range which includes mortgages, remortgages and homeowner loans which are often called by their other name secured loans for obvious reasons.

Mortgages , remortgages and homeowner secured loans are all secured on residential property, making their interest rates favourable.

A homeowner loan should always be the loan of choice for a person who owns his property as the interest rate chargesd is normally lower than the rate for an unsecured loan and homeowner secured loans are more readily available.

Interest rates commence currently at about 9% and the homeowner loan has other added advantages over the unsecured variety.

The repayment period is very flexible being from a minimum of five years to a maximum usually of twenty five years and as such the repayments can be put in place to suit the budget of most people.

Secured loans are also multi purpose loans meaning that they can be used to buy or do almost anything from car or caravan purchase, to funding home improvements. paying for dreams holidays, etc.

Remortgages are the replacing of a mortgage from a current mortgage provider to another, sometimes to simply obtain a better rate of interest with a new mortgage provider and this is called a like for like remortgage meaning that no additional funds are taken out.

However when the homeowner does in fact want to borrow aditional funds, a remortgage can be used to do this in the same way as a homeowner loan.

The interest rate for a remortgage is lower than that of homeowner loans starting presently at 1.84%, but there still is an occasion in which a homeowner loan would be the better way for a homeowner to borrow.

This is when he is in a tie in period with his current mortgage and the tie in period is normally from two years to five years, and during this time an early repayment penalty would be charged.

The penalty is from a minimum 2% of the outstanding mortgage balance to as high as 5%, meaning that a penalty of £2,000 would be payable on a 100,000 mortgage if the charge was 2% and £5,000 on a similar mortgage if charged at 5%.

Therefore during this time homeowner loans would be the ideal solution for homeowners wanting to borrow, and when the tie in period is over a total remortgage would be put in place.

Homeowner loans have normally a one month interest penalty if cleared early and as such although remortgages and homeowner loans are ideal loans , the secured loan is the better choice at such times.

Champion Finance has been arranging homeowner loans since 1985. They also arrange whole of the market mortgages and remortgages. Debt advice, debt help, debt management, Trust Deeds available to find debt solutions for those in debt.

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