Friday, 24 January 2014

What types of secured loans are available and should you consider them at all?

As I already previously mentioned, in order to take out a secured loan you will need a large enough asset that will function as a security, or collateral, for that loan. In most cases the banks mean homeowner secured loans to be exclusively mortgage types of loans, but other versions do exist, although most of the common folk will never get the chance to enjoy the benefits of such a loan. For instance, you can secure loans with any kind of bankable valuables, such as company shares, securities, bonds, jewellery, gold coins, gold bars and similar nonsense. As you can see, most regular people do not own any gold bars, so they will not even consider such a loan in the first place.

There are plenty of homeowners out there, though, and for that reason the mostly encountered secured loan is a homeowner loan. Keep in mind that most homeowners also may have a mortgage on their property, but that mortgage has been paid off to a certain extent, so a homeowner loan can also be a second mortgage, second charge loan or as already mentioned, a secured loan. Most of such loans are being provided by brokers, but some banks do allow customers to apply as well, particularly if you are already a valued customer there.

The homeowner loan is really similar to a mortgage and will also require a promissory note that will function as an encumbrance and be entered into a cadastre or similar land register, prohibiting you from selling your home without the lender’s consent. The biggest advantages of such a loan is the considerably lower APR rate and the long term repayment plan, which allows you to get a larger sum as a loan, without the instalment rate ballooning inappropriately. On the other hand, the long term obligation does not provide much of a wiggle room and if one day something happens unexpectedly, like you lose your job, or the economy dictates that your income gets reduced, or you get in an accident and cannot work anymore, you will most assuredly get into repayment trouble.

For that very reason, lenders often require that the homeowner not only sign a promissory note, but also purchase a hefty insurance package, which includes life insurance, but also includes extended insurances in regards to the home you put up. If you are considering such a loan, this will be another point that you will have to take into consideration, because it is a recurring expense. Some lenders also require the customer to provide re-evaluation certificates, by a state-approved assessor, which need to be obtained periodically. Therefore, make sure that you read the loan agreement carefully and do not skip the parts in small print, because there lie be the most traps hidden, so to speak.

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