Your home is one of the greatest financial tools you have, but for many, it just becomes a passive investment. If you’re interested in learning how you can use your home to unlock financial flexibility, then you need to keep reading our brief overview.
What are homeowner loans?
First things first, a homeowner loan is a type of secured loan that uses your home as collateral. Since it’s separate from your mortgage, it won’t affect any existing repayments.
However, just like a mortgage, the repayment terms for a homeowner loan can be quite long, stretching up to 35 years. Since you’re securing it against the paid value of your home, you can typically borrow a lot more money too, though you usually need to explain what the money is needed for.
Benefits of using home equity
One of the greatest benefits of using your home as equity is that it lets you reuse the value of your home for other financial projects. For instance, if you need seed money to launch your own business, you could take out a homeowner loan and start operating immediately.
Since a homeowner loan makes your money work for you, it can help you achieve financial freedom a lot faster than if your equity were sitting tied up in a building. Additionally, a homeowner loan is perfect for those who want to continue living in their home while still using its financial power.
Common uses for homeowner loans
Since a homeowner loan lets you borrow more than a traditional loan, they are typically used for a wider range of purposes. One example mentioned earlier is setting up a business, but other common uses for homeowner loans include funding renovations, a deposit for an additional property, and debt consolidation.
By utilising a high amount of equity for multiple purposes, you can work towards further increasing your financial portfolio. In turn, this can ensure greater financial stability in the future.
Eligibility and application process
If you think a homeowner loan is the right option for you, there are a few criteria you’ll need to meet. First, you need to be a homeowner. Second, your home needs a current mortgage and enough equity to borrow against.
The equity value of your home is the amount of your home you have actually paid for, so if your home’s value is £500,000 but your deposit was £50,000 and you’ve paid off £50,000 from your mortgage, your equity would be £100,000.
Once you’ve found a suitable lender, you can speak to the advisor, supply documents like bank statements and payslips, and get a decision in principle. The application will be processed, and if successful, you’ll get an offer. If you decide to accept the offer, the lender will arrange a completion date for you to receive the money.
