Secured Loans

A 'secured' loan is basically a loan where the borrower provides added security for the benefit of the lender. The loan is said to be 'secured' on the asset that you offer as security. In most cases, the borrower tends to use his/her own home as the security, or else another home he/she may own, for example a serious investor may be able to take out of more than one property, depending on the circumstances. However if the borrower does not make the necessary repayments, the lender is entitled to take the secured assets away and sell them to repay any debt. Which means you would lose your property.

If you use your home to provide security to the lender, the kind of borrowing may be called either a 'secured' loan or 'home-owner loan' and in usually is basically the same as having another type of mortgage. The lender does however, need to make sure that there is sufficient value in the property to provide adequate security for the loan. So for example if you bought your home some time ago, it may have increased in value since it was purchased, which would mean there could be additional value or 'equity' that can be "released" from the property.

If you have already bought your property with the assistance of a mortgage, then an additional loan that is secured on the same property is known as a 'second mortgage' (the existing mortgage is your 'first mortgage'). You can use that money for whatever you wish, but the debt still needs to be repaid in accordance with the terms of the loan agreement, just like your original mortgage.

Secured loans are offered by finance companies, who have to compete with banks etc for their business. Because the original mortgage lender usually holds the deeds for the property and has a priority in claiming back unpaid debt, secured loans tend to have a higher rate of interest. However these interest rates are still much lower than interest rates offered on any unsecured loans, for obvious reasons. We would advise seeking professional advice before taking out any kind of loan, especially against your home/property, as there is a serious legal commitment involved, and the consequences for failing to adhere to that commitment can be disastrous.

NOTE: These notes are offered as a general guide only and do not constitute financial or legal advice. you could lose your home if you fail to keep up repayments on any secured loan or mortgage against your property.

sources: UK Property Shop

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