Homeowner Loans Pros and Cons

A homeowner loan, as the term suggests, is a type of loan that uses one’s home as collateral. The loan uses the equity in your home to borrow money, which is usually a large amount meant for important and expensive purchases such as home renovation, car purchase, and debt consolidation.

Pros

Large borrowing capacity. With homeowner loans, you can borrow a large sum of money, provided that you have enough equity in your home. This large sum of cash can be used for a lot of purposes, such as funding a business, buying a car, remodelling your home, or consolidating your debts.

Reduced interest rates. Because there’s a property to back up your loan, there is something that the lender can seize if you failed to pay. This allows you to avail more competitive rates than unsecured loans, provided of course that you have good credit and a stable job.

Available for good or bad credit borrowers. Homeowner loans are quite flexible. Good credit borrowers often use them to lower their interest rates and borrow a larger amount. Meanwhile bad credit borrowers can also avail of them more easily than unsecured ones because of the presence of collateral.

Cons

Risk of losing collateral. The risk with secured loans is always the possibility of losing your collateral. All of us could go through tough times at any given time, and you’ll never know when you may miss a payment. If you fall behind on your repayments completely, there’s the danger of losing your home.

Longer repayment terms. Because you tend to borrow larger amounts with homeowner loans, the repayment periods are thus extended. Sometimes, it can take you 25 years just to finish off payments with a single loan.