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 Secured loans – the borrower's responsibilities 
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Post Secured loans – the borrower's responsibilities
by: David Lynes - Loans4

Over the past few years secured loans have become increasingly popular amongst homeowners in the UK, and this rising popularity has been partly fuelled by rising property prices, which have left homeowners with higher levels of equity in their homes. This increased equity has provided homeowners with far more financial leverage when it comes to borrowing money, and for many a secured loan has become the most affordable and effective way of borrowing money.

A secured loan is a loan that is secured against the home, and therefore in order to qualify for one of these loans you need to be a homeowner and will usually need to have some level of equity in your home. Secured loans offer a number of valuable benefits, which have added to their popularity, and this includes longer repayment period, which can reduce the amount that you have to pay out each month, and greater borrowing power depending on your equity levels and other factors.

However, it is important to remember that whilst these loans offer a range of benefits there are also risks involved, and therefore the borrower has certain responsibilities to ensure that these risks can be avoided. Because secured loans are secured against the home, unlike an unsecured loan, which is based on contract, failure to keep up with repayments could result in the borrower losing their home. Another risk to consider is that of falling into negative equity, and with house prices set to fall it is important for borrowers to make sure that they do not put themselves in a position where they are likely to get tied into negative equity, which is where the value of the home is lower than the amount of money owed on the property.

One of the main responsibilities when you take out a secured loan is to make sure that you can afford the repayments. You should be able to comfortably manage the repayments, as you also need to consider that repayments could go up in line with interest rate changes. If you are literally stretching your monthly income as far as possible in order to meet the repayments then you either need to reconsider taking out the loan or at least look at borrowing less so that the repayments are lower.

If you fail to ensure that you can keep up with repayments on a secured loan – and that there is enough flexibility in your budget to deal with any repayment rises – then you could soon find that you are no longer able to meet the repayments, and could ultimately lose your home. Make sure that you go through your budget carefully in order to determine how much you can afford to borrow, and bear in mind that whilst interest rates have come down recently other costs such as energy bills, food prices, and petrol prices, are rising.

Another responsibility that you have if you are considering a secured loan is to ensure that you do not finance your home to the hilt. Rising property prices have left homeowners with impressive levels of equity in their homes over recent years, but you should avoid borrowing up to the full level of your equity because house prices are expected to fall over the coming year. This could leave you in a situation where you owe more on your home by way of your mortgage and secured loan than the property is actually worth, which is known as negative equity.

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David Lynes

Loans4 provide homeowner loan solutions for homeowners. Please visit for the latest finance related news.

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Fri Dec 12, 2008 3:50 pm
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