Loans secured by property
What are loans secured by property?
The most common form of loans secured by property is a mortgage when you are buying a home. It doesn't matter if it's your first home, your second, third or fourth, or a property you are buying to rent out, you are nearly always likely to require a mortgage.
In the vast majority of cases, mortgages are secured on the property, so even though you are the titular owner the home belongs to the lender until you have paid off the full amount your have borrowed. This is not just the principal but includes interest and any application or other fees that have been agreed. If you don't pay for any reason, your property is likely to be repossessed by the lender and sold to recoup some money.
You may also be able to borrow against the equity in your home, the difference between its market value and how much the outstanding loan is, and that loan too would be secured by the property.
Why do people use loans secured by property?
Buying a home is usually the largest purchase anyone will make and due to the sums involved a lender will want to be assured that it will get its money back one way or another. Nobody goes into a mortgage not expecting to pay it off but financial problems can happen and lenders don't like to be exposed.
You may find that interest rates can be relatively low for loans secured by property, and you are also likely to get the option of many years, up to 25 or sometimes more, to pay off what you owe. Mortgages are tried and tested products in the financial markets and give people the opportunity to borrow large sums of money that might otherwise be unavailable to them.
What are the main features of loans secured by property?
Good interest rates and long repayment schedules are attractive features of loans secured by property. You can sometimes get mortgage options to have a payment holiday, pay in more than the agreed amount or take advantage of products such as free offset accounts or loans that have no application fees.
When you pay off your mortgage you will be in possession of a very valuable capital asset, one that may well have increased considerably in value over the years. You should always check the terms and conditions of a loan secured by property to ensure you are getting a good deal that is suitable for your personal circumstances.
What are the pros and cons of loans secured by property?
You are much more likely to get a large loan by using this type of product, a competitive interest rate and a good number of years to pay back the loan.
If you are unable to pay back the loan, even if you have been repaying for a long time, your home is at risk of repossession. Every lender will warn you of the consequences and because the loan is secured on the property a lender could sell it to get a return on the money it lent and you would be left having paid out many thousands of dollars with nothing to show in return.