Most of us will at some stage in our lives need a large loan. These loans can be for buying property, cars or maintenance and construction of a property we own. We might need to take a loan for unfortunate reasons such as medical bills not covered by insurance or loss of goods damaged when not covered by insurance, or we might want to pay for education or an all-out expensive vacation. Whatever the reason, when looking for a loan it is best to consider all the alternatives before rushing into the first loan shop that gives us the green light.
Home Owners have an added advantage since they already own a property that has a defined market price and can be used as collateral for a loan, which is accepted by every financial institution. The homeowner loan is also called a “secured loan” or mortgage since you mortgage the house to secure the loan. Since the lending institution has lee on the property that can be used when payments are in default. Secured loans also provide a larger amount, usually up to 80% of the property value less any other debts associated with the property. These loans can also be spread over longer periods of time; mortgages can reach 30 years in the US.
When applying for a homeowner loan, some financial institutions will want to know what the loan is for, while others don’t really care. It is always best to check out where you get the best interest rates and easiest payback schemes. This means you need to shop around, don’t go to your bank and not research other options. The interest and payback schemes are so varied that the higher the loan amount, the more you will end up paying back if you are not careful.
There are other types of loans available, each one for a specific target audience and loan size, they have their pros and cons, and if you don’t want to use your house or property as collateral, you would be able to choose from the following options.
These are loans for a specific asset such as a car. Car financing is another term for a targeted loan. This means that you can only use the money for purchasing the asset you applied the loan for. In many instances you never even “hold” the money you are lent, it is sent directly from the financial institution to the vendor, after which you receive the asset you bought.
Unsecured Personal Loans
These are high-interest short-term payback loans. Preferred by loan shark operations and small finance houses. When a loan is too easy to get, check the interest rates and default interest rates before you accept it. You will find that if you default on a payment, the interest rates explode exponentially.
Credit cards are basically loan companies that give you a piece of plastic to represent every loan you take when you use the card. Credit cards are an integrated part of society; most people think that you cannot live without them, but there are alternatives such as top-up cards and standard bank linked debit cards. Credit card owners can get small loans from their card providers. Usually, payments are spread over a year to two years and incur a very higher interest rate.
If you were clever enough to save up a percentage of your monthly income for a rainy day, then carefully think before you dip into your cash savings. While it might hurt to take money in hard cash out of the system, it is better than taking a loan, which costs much more and when defaulted can ruin you financially.
How to obtain Secured Homeowner Loans
Homeowner Loans are the best alternative when needing the use of large amounts of money that you cannot access from savings. However, homeowner loans are only an option for homeowners.
There are some steps in obtaining a loan, the process is the same for every institution while the paperwork might differ slightly they will all ask for proof of identity, ownership, and in some instance your sources of income. The sources of income are used to determine the maximum repayment schedule you can afford. If you have no visible sources of income, or the income source is low, the institution will understand that the loan is secured but might be defaulted and as such they will prefer to spread the payments over the maximum period, say 30 years, so you can afford to pay them back.
Factors for considering a loan and evaluating the cost:
- Loan Amount offered, what is the maximum amount you can get for your property value.
- Loan repayment period, how many months (Years) you will repay it.
- Interest type is it a bullet loan with monthly interest payments, a spitzer model; it is linked to any other currencies or prime rebate.
- Default payment interest, if you miss a payment, how will it affect your interest, and how many defaults before the institution forecloses on the property.
- Early loan closing fines, if you decide to close the loan before it expires, what fine will you pay.
If you are not an expert in financial planning you might consider going into a loan expert office, these companies specialize in finding the cheapest loans and transferring them when they find cheaper versions during the loan lifetime. Transferring loans once or twice in a long loan span is not uncommon and usually happens when one loan option significantly reduces the costs.
If you own more than one property, it might be best to use only one asset for a loan base rather then balancing the loan between two. Most institutions would prefer as much security as possible, however, endangering more than one property for a loan must be seriously contemplated.
Tips for Homeowner Loans
- If you want to increase your property holdings, where you own a property and want to buy another one. You should consider using a homeowner loan on both, with an 80:20 split, where the new property is mortgaged for 80% and only 20% on your primary property or living home.
- Do not take a homeowner loan if you really don’t need it. In other words, if you need money for a five-star vacation, don’t mortgage your home for this, you must remember that when you get back, you have to pay for the vacation every month. Spending beyond your means is not a clever way to live and is what leads most families into serious debt.
- Foreclosure: remember this word, it is what stands behind every mortgaged house that defaulted over too many payments.