Secured Home Loans
What Is A Secured Loan
There are basically two different types of money loans available today, one is the secured loan and the other is the unsecured loan. Unsecured loans are usually associated with credit cards. Unsecured loans are also not backed by anything of substance that you own. If you default on an unsecured loan the lender has almost no recourse against you and ends up taking the loss themselves. Secured loans, on the other hand, are always secured by some type of property that you own. One of the most common types of secured loans are home loans. These loans are more commonly called mortgages and you can actually have more than one. You could have a 2nd and even a 3rd if you qualify for them. In the law, the 1st mortgage takes precedent over a second or a third mortgage loan. Because of this, add on mortgages carry a greater risk of default and are as a consequence more expensive.
How are Secured Loans Handled
Prospective home owners, especially those going through this process for the first time, may feel a bit overwhelmed at all the document required by a lender to qualify for purchasing a new home. This is true even if you are refinancing or even trying to get a 2nd mortgage. You will be required to sign disclosure forms and fill out an application to begin the process. You will also be required to produce various pieces of information such as your credit history, employment status, tax returns, and even recent bank statements. These are required to properly determine how much money you can afford to borrow from the lender.
The amount of money being lent to you is also based on the equity in your the home. Generally most home loans are for less than 100% of the value of the home. An 80% loan is a standard number. In addition to this qualifier, the lender also requires that you demonstrate to them your ability to repay the mortgage loan. This is normally done by the lender deducting your monthly expenses from the amount you want to borrow to determine the homes affordability for you.
What Is Equity And How do I Calculate It
The value of your property minus the balance on your mortgage equals your equity. As an example, if the property you own is worth £300,000 and you borrowed £100,000 to secure a 1st mortgage you have £200,000 in equity. We have gone over mortgages and equity but why do some people need a second mortgages and what are they used for?
The Second Mortgage
Because of the instability in the financial markets in recent years 2nd mortgage charge lending has changed dramatically. The largest change has been because interest rates have fallen to the point where they are now competitive with 1st mortgage lending rates. The question of why a customer would need a 2nd charge loan varies with their situation. One scenario is because you need to consolidate your debts, another reason could be to do some home improvements or upgrades that are particularly expensive. Another reason could be a change in your circumstances. You might have gotten laid off or even changed careers and need some additional capital to help you through a rough period in your life.
A good thing to remember about lenders is that they are all biased towards their own products. They will all generally tell you that their loans are the best, however it is important to understand that they are under no requirement to offer you the best rates. Because of this, it is always a good idea to shop around with different lenders. Another thing to keep in mind if you are looking for a 2nd mortgage is that getting a 2nd is serious affair and should not be taken lightly. This is because if you fail to make your payments you more than likely have contractually agreed that your property can be repossessed and even sold to clear the debt with the lender. Even then, however, there may not be enough equity in the property to repay all the loans against it and you may still find yourself in debt. If this were to happen, the difference would be that you would be in debt and have no property. This sounds like it could never happen but it actually already happened to literally thousands of people in 1997-1998. Read more information about secured home loans come visit us at SecuredLoanExpert.co.uk.