What to know about secured loans and mortgages
A secured loan is a borrowed sum of money which is secured against your assets, usually your home. Secured loans can assist with borrowing cash, particularly if you require a larger sum for a major purchase such as home renovations or a car. A loan of this type is typically for more than £10,000. Interest rates on these loans are often lower compared to an unsecured loan, but a secured loan can pose more of a risk as your home will be at risk if you fail to make repayments.
The Irish News points out that a typical secured loan will cost around seven per cent per year compared to a two-year fixed rate mortgage which is around five per cent.
What is a secured loan?
Secured loans are also known as homeowner loans or second-charge mortgages. As your home is used as collateral, the lender can sell your home if you are unable to keep up with the repayments. This is why interest rates are lower than those applicable to unsecured loans. There is the option of having a loan secured against other valuables, including your car, or jewellery. A secured loan is a significant undertaking, given the potential for repossession and must be considered carefully.
What is a mortgage?
A mortgage is a loan that is arranged solely for a property purchase. The mortgage term will typically extend over 25 years, with repayments being made monthly. The mortgage is secured against the property in a similar fashion to a secured loan.
What’s the difference between a mortgage and a secured loan?
The main factor in common is that they are both forms of loans that are secured against your property. Similar to a secured loan, your home could be repossessed if you are unable to meet the mortgage repayments.
What is a loan agreement and what professional help do I need?
A loan agreement is a contract between a borrower and a lender and it outlines in detail the repayments. The agreement is enforceable, and the borrower must adhere to the repayment schedule as outlined in the document. Whether you wish to lend money to a family member for a home deposit or assist with short-term cash flow problems in business, you can see further information here: https://www.parachutelaw.co.uk/loan-agreement.
How do I create a payment plan?
There are various ways of completing the loan, including making a lump sum at the end of the term on a specified date. The borrower can also make repayments at the request of the lender who will set out the amount and payment intervals. The remainder will be paid at the end of the loan term. The borrower can also make regular repayments that go towards both the sum and the interest incurred. There will be no final payment at the end of this borrowing term. The schedule will be calculated so that the borrower has the sum and the interest paid off by the end of the term.