Homeowner Loans – 10 Things To Consider When Looking For A Homeowner Loan
A homeowner loan is a type of loan that has become increasingly popular as a result of property prices within the UK rocketing over recent years, and homeowners enjoying increased levels of equity in their homes. Homeowner loans provide an effective and affordable borrowing solution for many homeowners, but you still have to give careful consideration when applying for and signing the loan documents when you take out this type of loan. There are a various items to consider when applying for a loan and we have listed the 10 things to consider when looking for a homeowner loan in the following paragraphs.
- Purpose of the loan
- Interest rate
- Term
- Monthly payment
- Processing fees
- Repayment fees
- Early payment fees
- Secured or unsecured
- Bank or broker
- Documentation required
Purpose of the loan – taking out a loan is going to cost something for the interest you will pay and the fees for the loan. Careful consideration regarding the reason that you are taking out the loan vs. doing without should always be something to consider when looking for a homeowner loan.
Interest rate – the interest rate is one of the most important decisions you will need to make. The rate that you are charged will depend on prevailing rates as well as your credit rating and history with the lender that you are dealing with. A 1% difference in the rate can make a huge difference in your total cost of the loan and can sometimes cost you hundreds or thousands of dollars. Always shop around to find the best rate available.
Term – the term is the length of time that you will take to repay the loan. The longer the term, the smaller the monthly payments, however the total interest that you will pay also increases since you are effectively borrowing the money longer always try to aim for the shortest term you can afford from a monthly payment perspective.
Monthly payment – the monthly payment is a function of the term and the interest rate. Short terms and high interest rates will generate high monthly payments, while low interest rates and long terms will generate low monthly payments. Long terms for homeowner loans will also generate higher interest costs.
Processing fees – some lenders will charge a fee to process the loan, while others may decide to waive the fee. Always attempt to negotiate this item to zero as well as the lowest interest rate.
Repayment fees – these fees are quite rare, however if you have registered a secured home owners loan against your home for example, you may have to pay a fee to have this loan removed from being registered against your home.
Early payment fees – again this is unusual in the industry, but some lenders do charge a fee for this service. Always enquire prior to signing all of the documents if there are any fees for early repayment.
Secured or unsecured – secured home owner loans carry a lower interest rate than non secured loans. They can reduce your total interest cost, however there may be fees associated with registering the loan.
Bank or broker – brokers can often find the most competitive home owner loans with low interest rates and no fees. They charge a finder’s fee to the lender so there is no extra cost to the borrower. Compare the interest rate from the broker with the homeowner loan you can obtain from your local bank
Documentation required – review all of your documentation prior to signing to confirm all of the details that you have agreed to.