Homeowner Loans

If you own a property and need a loan, we’ll walk you through how homeowner loans work before applying for one.

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Typical 10.8% APRC variable. Representative example: If you borrow £34,000 over 15 years at a rate of 8.26% variable, you will pay 180 instalments of £370.70 per month and a total amount payable of £66,726.00. This includes the net loan, interest of £28,531.00, a broker fee of £3,400 and a lender fee of £795. The overall cost for comparison is 10.8% APRC variable.

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Table of contents

Written by Mark Grimley
Read time: ~5 mins
Published: 4th October 2023

What is a homeowner loan?

A homeowner loan is a loan secured against a property you own, which means the equity in your home is used to recover your debt if you can’t pay back what you've borrowed from a lender. Homeowner loans are another name for secured loans or second-charge mortgages.

Homeowners often use this type of loan to borrow funds for significant home improvement projects or to spread the cost of major purchases.

How do homeowner loans work?

They work similarly to personal loans - you borrow an agreed sum and then repay the loan in monthly installments with added interest. The difference is your home is provided as collateral for the lender, guaranteeing repayment.

Homeowner loans typically offer lower annual percentage rates (APRs) and longer repayment terms. The downside is that your home is at risk if you can't keep up with repayments.

A homeowner loan is treated separately from your existing mortgage, and you don't have to take out the loan with your existing mortgage lender or bank.

Types of homeowner loans

There are different types of homeowner loans which could affect the rate of interest you pay.

A variable rate homeowner loan fluctuates depending on the base rate; therefore, your monthly repayment may vary. On the other hand, a fixed-rate loan means your interest rate and repayments don't change, but your homeowner loan rates may be higher.

A short-term fixed-rate loan is a combination of the two where, for example, you may have a fixed rate for several years and move on to a variable rate for the remaining term.

What you need to know

The bottom line is only homeowners with a mortgage are eligible for homeowner loans, and you'll pay interest on the loan, which means you'll pay back more than you borrowed.

Most importantly, your home is at risk if you can't keep up with repayments.

Key features:

  • The maximum amount you can borrow depends on the equity you have available on your home
  • The repayment term can be anything up to 35 years
  • Credit and affordability checks will be performed when you apply
  • Fees are payable such as; legal, valuation and broker fees
  • Homeowner loan rates will vary depending on the type of loan you choose
  • Can you get a homeowner loan without a mortgage?

    It depends on the lender, but a secured homeowner loan may not be the best choice if you own your home outright or have already paid off your mortgage.

    A secured loan is usually taken in addition to an existing mortgage; hence the name second charge mortgage, whereas a mortgage lender has the first charge on your property. If you take out a secured loan with no mortgage, the secured lender will benefit first from the home sale to clear your debt rather than a mortgage lender.

    If you have no mortgage and are considering a secured loan, a cheaper homeowner loan option could be equity release, a lifetime mortgage or a first-time mortgage.

    Do you have to spend a homeowner loan on home improvements?

    No, despite the name, once your loan is approved, you can spend the money on whatever you like, although the lender may ask you what the money is for when you apply.

    You could use a homeowner loan to:

    • Make home improvements
    • Build an extension
    • Buy a second property
    • To consolidate debts
    • Start a business
    • Buy a car

    What are the pros and cons of homeowner loans?

    Although there are many good reasons to consider a homeowner loan, there are risks attached to borrowing against your home.

    Here are the advantages and disadvantages to help you weigh up the pros and cons:

    • Lower interest rates than a personal loan
    • You could potentially borrow more money depending on the equity you have available on your home
    • Repayment terms are longet; up to 35 years
    • it's easier to get approval if you have a poor credit score
    • They could be better for self-employed or thos with unique financial circumstances
    • If you default on the loan, your home is at risk of repossession
    • Some loans have variable interest rates, which could become more expensive in the future if base rates rise
    • The overall price of the loan may cost more than a personal loan due to the longer borrowing term
    • Additional fees may add costs to the loan
    • Early repayment penalties may apply if you want to pay off your loan early

    Are there any alternatives to homeowner loans?

    A personal loan is one of the simplest alternatives. You don't need to provide security, and repayment terms tend to be more flexible. However, this could be a costly option if you need funds for an extended period.

    Some direct lenders offer unsecured loans designed especially for home renovations, called home improvement loans. You can typically borrow up to £25,000 and pay it back over a set time. Often more flexible than personal loans, you can sometimes borrow larger sums and repay early without penalty.

    If you have a variable rate mortgage or are coming to the end of your fixed rate deal, remortgaging can be an alternative to taking out a separate loan. You'll need enough equity in your home to release the funds and expect to pay some upfront fees.

    A debt consolidation loan is worth considering if you have multiple large debts and you're taking steps to repair your credit score. A debt consolidation loan allows you to borrow a fixed amount to pay off numerous debts; for example, credit cards and unsecured loans with one monthly payment.

    How to get the best homeowner loans

    Borrowing a large amount of money secured on your house is a huge commitment, so it’s important to think carefully about:

    • How much you need to borrow: If it's less than £25,000, a personal loan could be a better option.
    • How long you need to repay the loan: Work out what you can repay each month and opt for the shortest term you can afford.
    • How much equity you have in your home: You'll need an up-to-date valuation of your property and you'll need to know how much you have left to pay on your existing mortgage.
    • If you want to risk your home: Ask yourself how secure your income is, can you afford the loan repayments over the whole term and do you want to risk having your home repossessed if you default?

    It's worth checking your credit report before applying because your credit rating will determine the amount you can borrow and the interest rate you'll be given.

    Are homeowner loans a good idea?

    A homeowner can be a good idea if you don't want to remortgage or increase your first charge mortgage to release funds.

    A homeowner loan is worth considering if:

    • You need to borrow a large sum of money, over £10,000
    • You have a poor credit rating and cannot get an unsecured loan
    • You're on a low fixed mortgage deal and don't want to remortgage
    • Due to your age or income, you can't secure a remortgage with your mortgage lender

    What documents do I need for a homeowner loan?

    Lenders will perform eligibility and credit checks, so be prepared to provide personal and financial documentation. A property valuation will be needed too.

    You'll likely need:

    • Mortgage statements
    • Evidence of identity, i.e. passport or driving licence
    • Evidence of income and expenditure
    • Details of any outstanding debts including credit cards, store cards and other loans

    Homeowner loan FAQs

    Is a homeowner loan the same as a mortgage?

    No, a mortgage is a loan taken out specifically to buy a property or land, whereas a homeowner loan can be borrowed for any purpose but secured against your house.

    How much can I borrow with a homeowner loan?

    Secured homeowner loans are typically used for borrowing large sums of money, so lenders don't typically lend below £5,000. The maximum ultimately depends on how much equity you have in your home.

    Generally, you can only borrow a percentage of the equity you own, so your loan will be limited by the value of your home.

    For example, if your property is worth £300,000 and there's £200,000 left to pay on your mortgage, a lender will only offer you a loan up to a certain percentage of the £100,000 equity you own.

    Can I get a homeowner loan with bad credit?

    Yes, if you have a mortgage and equity in your home, you can borrow against your house and be eligible a homeowner loan, even if you have a bad credit score.

    Typically, if you have a poor credit history, you can usually borrow more with a secured homeowner loan at a lower interest rate than a personal unsecured loan.

    If you have a bad credit score, you may be more likely to be accepted for a homeowner loan than being an unsecured loan, but it will depend on the amount of risk the lender is prepared to take.

    Some direct lenders and secured loan brokers specialise in homeowner loans for poor credit, but bear in mind your home is at risk if you can't keep up with repayments.


    Written by
    Mark Grimley
    Head of Partnerships & Take Control Author at Choose Wisely

    Mark joined Choose Wisely in 2015. He continues to work in close contact with the providers, brokers and journalists operating in the world of consumer credit.

    Important Information.

    All of the information in this guide is correct at the time of writing.

    If you complete a loan search application on the Choose Wisely website, the rates shown may vary based on your personal circumstances, are subject to status and are available to those aged 18 and over. Rates available range from a minimum of 13.9%APR to a maximum of 1721%APR Representative and loan repayment periods range from 3 to 60 months.

    If you need financial advice you can visit stepchange, speak to citizens advice, call the national debtline or speak to moneyhelper.org.uk.

    If you've been declined, please refer to your credit report to gain an understanding of why before making further applications.
    You can access your credit report for free from Credit Karma, Clearscore or Experian.