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Should I Borrow Against My House?

In thinking about and applying for a loan, one of the many questions we ask ourselves is:

* How much of a loan do I need?

* What is the loan to be used for?

* What are the payments going to be for the loan?

Strangely enough a lender is going to ask some of the same questions, although they may be the ones dictating the payment amount, as they are the ones who determine what interest rate you will receive.

Interest rates for loans can be based on a few factors:

* Your credit score. Good or high credit scores get lower interest rates.

* What the loan is to be used for. Such as is it a personal/unsecured loan, or a secured loan, secured by collateral such as a car or property.

* The term of the loan. Some shorter term loans have higher interest rates, and some have higher rates. I know it sounds complicated, but it can depend on if the lender is looking to get paid back quicker and feels that is less a risk to them, and also it can tie in with credit scoring.

Secured loans also can tend to have lower interest rates, again due to their being collateral for the loan, so if you need a loan, and have equity in a property, pledging that equity for a loan, may get you a lower interest rate.

Which is in essence taking out a loan against your property using the equity you have.

What is equity?

Equity in a property is the difference between what you owe on a property (the balance on the mortgage), and the value of the property.

A formula to determine equity might look like this:

Value of the property – any outstanding mortgage(s) or charges on the property = Equity

An example may be you have a property valued at £200,000, and you have a mortgage balance of £100,000, which means you have £100,000 in equity in your property.

If the property were valued at £175,000, then you would have £75,000 of equity in the property.

You are sitting on a mountain of money!

Sort of, it is the realising of that money that is key.

So how do you access that equity, that mountain of money you have?

In two ways:

* Sell the property.

* Re-mortgage or borrow against the equity.

Not everyone wants to sell their house to access the equity they have, so re-mortgaging or borrowing against the equity is a better option, or is it?

To Borrow Against My House or Not…That is the Question

In answering this question we need to look at three (3) things:

* The benefits

* The risks

* Alternatives

If you are looking to take out a loan to do repairs or improvements to a property, borrowing against the property may be a good option.

However, the same risks and benefits and alternatives still apply.

Benefits

The benefits of using a property to get a loan are varied, one is that you may be able to borrow more, but this will depend on how much equity you have in the property. Many lenders will only lend a percentage of the equity you may have.

If you have £100,000 in equity, a lender may only lend 70% of this or £70,000.

If you have £20,000 in equity, 70% is £14,000.

Should you need to borrow a higher amount, you will need to look at other options.

Another benefit is the interest rate and term of the loan; you may receive a lower interest rate as it is a secured loan. You may also be able to have a longer term to repay the loan, both of which lower the month payments.

As borrowing against a property is a secured loan, someone with a lower credit score may still qualify for the loan.

Risks

The main risk of borrowing against your home is that if for any reason you fail to pay the new monthly payments, your property/home is at risk of being repossessed.

What can happen is you still have your original mortgage payment each month, and now in addition to this payment, you have another secured loan payment, which is secured against the property.

Failure to pay either, could result in repossession.

Alternatives

There are alternatives to using your home as a basis for a loan, even with bad credit.

You could consider an unsecured personal loan for what you need. It does not change the fact you will have another monthly payment, but if you struggle to repay the loan, your property is not at immediate risk.

If you cannot qualify for a personal loan, such as due to bad credit, or a lower credit score, there are guarantor loans which could help as well.

Loans that are based on affordability and also having a guarantor. Bad credit is not an issue, and the loan is not secured by your home/property.

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<strong>What is Our Criteria For Applying?</strong> 
Every lender on our website has their own specific criteria by the basics are mentioned below and you must have a guarantor to be eligible. Simply select the lender of your choice and you will be taken directly to their website where you can apply. You will be required to submit your details including:<li style=”text-align: center;” data-mce-style=”text-align: center;”>Name (must be over 18 as the borrow, 21 or 25 as the guarantor)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Residence (your chances will improve if your guarantor is a homeowner)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Employment status (must be employed or on a pension)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Income (earning at least £600 per month and able to make repayments)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Monthly expenses (not have too many loans open or in major debt)</li>
 
You will then be asked to include the details of your guarantor and as mentioned above, this is usually someone who you know and trust and wants to help you with your personal finances. Ideally, a guarantor with good credit will maximise your chances of being approved based on the idea of ‘if someone with good credit trusts you, well we can too.'<strong>How Much Can I Borrow From Guarantor Loans?</strong>Guarantor Loans gives applicants the chance to borrow £500 to £15,000 depending on the lender. Some lenders we feature like Buddy Loans only have a maximum loan value of £7,500 and TFS Loans is the only lender that stretches up to £15,000.Factors that can influence the amount you can borrow revolve around having a good guarantor. One that is a homeowner, with solid employment, income and good credit rating will maximise your chances of borrowing the largest drawdown possible.The lenders featured on Guarantor Loans see a homeowner as someone who has already gone through the rigorous process of credit checking and affordability and if they can afford a house, they should be able to act as a guarantor for you.By comparison, having a guarantor that is not a homeowner offers slightly less security and means that amount you can borrow is slightly less too.Higher amounts may be available to those who already have a better than average credit rating, are homeowners themselves and a repeat customer with the lender who has already paid their loan on time. To apply directly with your lender of choice see <a href=”https://www.paydaybadcredit.co.uk/direct-lender/” data-mce-href=”https://www.paydaybadcredit.co.uk/direct-lender/”>direct lenders</a>.<strong>What Does The Guarantor Have To Do?</strong>Upon completing an application, the lender will typically send you a <a href=”https://www.handbook.fca.org.uk/handbook/CONC/4/2.html” data-mce-href=”https://www.handbook.fca.org.uk/handbook/CONC/4/2.html”>pre-contract loan agreement</a> and SECCI (Standard European Consumer Credit Information form) which will highlight the terms of your loan. You and your guarantor will be required to review the terms of the loan, including the loan drawdown, fees, repayment dates and responsibilities – and this can be signed via an online verification process using your email and mobile phone.The lender will usually carry out an individual phone call with you and your guarantor to ensure that you both understand the responsibilities and what is required of you – notably that if you cannot make repayment, your guarantor will be required to pay on your behalf. Further to some additional credit and affordability checks, funds can typically be transferred within 24 to 48 hours (or sometimes on the same day).<strong>Are Guarantor Loans Available For Bad Credit Customers?</strong>Yes, even if you have a history of adverse credit, <a href=”https://www.gov.uk/county-court-judgments-ccj-for-debt” data-mce-href=”https://www.gov.uk/county-court-judgments-ccj-for-debt”>CCJs</a>, bankruptcy or IVAs several years ago, you can still be eligible. The idea is that you are using your guarantor and their financial history to ‘back you up’ and give your loan extra security. However, it is noted that your guarantor should have a good credit score and consent to co-signing your loan agreement.<strong>How Soon Can I Receive Funds?</strong>Guarantor Loans works with lenders that can facilitate funds within 24 to 48 hours of approval, or sometimes on the same day.When your funds are successfully transferred, most lenders working with Guarantor Loans will send the full amount to the guarantor’s debit account first. This is a standard security measure carried out by lenders to ensure that the funds are going to the right person and confirms the involvement of the guarantor. The guarantor usually has a ‘two week cooling off period’ where they can decide to pass on the money to the main borrower or they can change their mind and return the funds with no extra charges.