If you need to borrow a significant amount and you own your home, you may be considering either a homeowner loan or an unsecured personal loan.
The key difference is that a Homeowner loan is secured against your property, while an unsecured personal loan is not secured against a specific asset.
A Homeowner loan may allow you to borrow a larger amount over a longer term and may offer a lower interest rate than some unsecured borrowing. However, because the loan is secured against your property, your home may be at risk if you do not keep up with repayments.
An unsecured personal loan does not use your home or another specific asset as security. Borrowing limits and repayment periods are often lower or shorter than for secured borrowing, and the rate you are offered will depend on factors including your credit record, income and affordability.
Which option may be appropriate will depend on your circumstances, including how much you want to borrow, how long you want to repay it over, your financial position and whether you are comfortable securing borrowing against your home.
What is a Homeowner loan?
A Homeowner loan is a loan secured against a property you own.
You typically borrow a lump sum and repay it, together with interest, in monthly instalments over an agreed term. A homeowner loan is secured against the equity of a house or flat.
A Homeowner loan may also be referred to as a secured loan or, where applicable, a second-charge mortgage.
A second-charge mortgage normally sits behind your existing mortgage. Your existing mortgage lender will generally have the first legal charge over your property, with the second-charge lender ranking behind it.
Taking a second-charge mortgage may allow you to keep your existing mortgage in place rather than refinancing it. However, whether that is appropriate will depend on your circumstances, and the overall cost and risks of the available options should be compared carefully.
The amount you may be able to borrow can depend on factors including:
- the value of your property;
- the amount outstanding on your existing mortgage;
- the equity in your property;
- your income and expenditure;
- your credit history; and
- the lender's affordability and eligibility criteria.
Equity is broadly the difference between the current value of your property and the amount you still owe against it.
Because a homeowner loan is secured against your property, failing to keep up repayments can have serious consequences and may ultimately result in repossession.
Before taking out secured borrowing, it is important to understand how the loan works, the total amount repayable and what could happen if your circumstances change.
You can also read more about how secured borrowing works and the risks to consider in Selina Finance's guide to secured loans.
What is an unsecured personal loan?
An unsecured personal loan allows you to borrow money without using your home or another specific asset as security.
You normally borrow a fixed amount and repay it, together with interest, through agreed monthly repayments over a set period.
Because the loan is unsecured, your home or car is not provided as security for the borrowing. However, missed repayments can still have serious consequences.
For example, missed payments may:
- damage your credit record;
- result in fees or additional interest, depending on the terms of the loan;
- make it more difficult or expensive to obtain credit in future; and
- lead to court or enforcement action.
Lenders usually consider a range of factors when deciding whether to offer an unsecured loan and what interest rate to charge. These can include your credit history, income, existing commitments and overall affordability.
A stronger credit profile may improve your chances of qualifying for more competitive rates, although this is not guaranteed.
Unsecured loans are often used for smaller amounts and shorter repayment periods than secured homeowner loans. Applications may also be quicker because there is normally no property valuation or legal charge over your home.
If you are considering an unsecured loan to consolidate existing debts, it is important to understand both the potential benefits and the risks. Combining several debts into one repayment may make your finances easier to manage, but it does not reduce the amount you owe automatically and may increase the total amount repayable if you borrow over a longer period.
Homeowner loan vs unsecured personal loan: the key differences
The table below provides a general comparison. Exact terms will depend on the lender and your individual circumstances.
A lower interest rate does not necessarily mean a loan will cost less overall.
A Homeowner loan may be available over a longer repayment period. Although this can reduce the monthly repayment, paying interest for longer may increase the total amount you repay.
For that reason, it is important to compare:
- the interest rate;
- the monthly repayment;
- any fees and charges;
- the repayment term; and
- the total amount repayable.
You should also consider the additional risk created by securing borrowing against your home.
How much can you borrow, and how do the interest rates compare?
With a Homeowner loan, the amount available will generally depend on the value of your property, the equity you hold, your income, your existing financial commitments and the lender's affordability criteria.
Because the lender has security over your property, homeowner loans may allow higher borrowing amounts than some unsecured personal loans. Interest rates may also be lower than some unsecured alternatives, although this will depend on the product and your circumstances.
With an unsecured personal loan, the amount and interest rate offered will usually depend heavily on your credit profile, income and affordability.
Someone with a strong credit history may qualify for a more competitive rate than someone with missed payments or other adverse credit history, although lenders use different criteria and no particular rate or approval can be guaranteed.
When comparing options, remember that a lower interest rate does not automatically mean a lower overall cost.
A secured loan taken over a longer period could result in more interest being paid in total, even if the monthly repayment or interest rate appears lower.
Always consider the total amount repayable, as well as the monthly repayment and interest rate.
Any online calculation or indicative figure should be treated as a starting point only. Your actual eligibility, borrowing amount and interest rate will depend on a full assessment of your circumstances.
Which option could be suitable for your circumstances?
There is no single borrowing option that will be appropriate for everyone.
The right approach will depend on factors including:
- how much you need to borrow;
- how long you want to repay it over;
- your income and expenditure;
- your existing financial commitments;
- your credit profile;
- the total cost of borrowing; and
- whether you are prepared to secure the loan against your home.
For larger borrowing requirements or longer repayment periods, a Homeowner loan may be one option to consider.
However, securing borrowing against your home introduces a significant additional risk, and a longer repayment period may increase the total amount you repay.
For smaller amounts or shorter borrowing periods, an unsecured personal loan may be an option to consider. Because it is not secured against your home, your property is not provided as security for the loan, although missed repayments can still have serious financial consequences.
What if you have a weaker credit history?
A weaker credit record may affect the interest rate or amount you are offered on unsecured borrowing, and some applications may be declined.
Some secured lenders may assess applications differently because the loan is backed by property. However, using your home as security does not guarantee approval and does not remove the need for affordability checks.
You should be cautious about any calculator, advert or statement that suggests acceptance is guaranteed.
Eligibility will depend on the lender's criteria and an assessment of your circumstances.
What about debt consolidation?
If you are considering borrowing to consolidate existing debts, compare the overall cost carefully.
Consolidating several debts may reduce or simplify your monthly repayments, but extending the repayment period can increase the amount of interest you pay and the total amount repayable.
If you move unsecured debts into a loan secured against your home, you are also changing the nature of the risk: debts that were previously unsecured will become secured against your property.
Think carefully before securing other debts against your home. If you consolidate existing borrowing, you may be extending the term and increasing the total amount you repay.
Before deciding, it can help to write down:
- the exact amount you need to borrow;
- your current monthly commitments;
- the repayment you could realistically afford;
- your preferred repayment period; and
- the total amount you would repay under each option.
Explore your options with a Selina Homeowner loan
If you are considering secured borrowing, a Selina Homeowner loan is one option you may wish to compare with other forms of borrowing.
A Selina Homeowner loan is secured against your property and is repaid over an agreed term.
Whether it is appropriate for you will depend on your circumstances, eligibility and affordability.
Before proceeding, consider the interest rate, repayment term, fees, total amount repayable and the consequences of securing borrowing against your property.
You can visit the Selina Homeowner loan page to find out how the product works and review the applicable eligibility requirements, costs and terms.
You can also compare a Homeowner loan with other forms of secured borrowing, including a Selina Home Equity Line of Credit (HELOC), and review Selina Finance's frequently asked questions for more information about the application process.
Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. Think carefully before securing other debts against your home. If you consolidate existing borrowing, you may be extending the term and increasing the total amount you repay.
Frequently asked questions
Is a Homeowner loan the same as a mortgage?
Not exactly.
A Homeowner loan is a form of borrowing secured against your property. Where structured as a second-charge mortgage, it will normally sit behind your existing first mortgage.
Your first mortgage may have been used to purchase your home, while a Homeowner loan is additional borrowing secured against the property.
Is a Homeowner loan a good idea?
Whether a Homeowner loan is appropriate depends on your individual circumstances.
It may allow you to borrow a larger amount or repay over a longer period than some unsecured alternatives, and the interest rate may be lower than some forms of unsecured borrowing.
However, the loan is secured against your property, so your home may be repossessed if you do not keep up repayments.
A longer repayment period may also increase the total amount of interest you pay.
Consider the total cost, repayment period, your ability to afford the repayments and the consequences of securing borrowing against your home before deciding.
Can I get a Homeowner loan if I already have a mortgage?
Potentially, yes.
Many Homeowner loans are structured as second-charge mortgages and are designed to sit alongside an existing mortgage.
The amount you may be able to borrow will depend on factors including your property value, existing mortgage balance, equity, income, expenditure, credit history and the lender's affordability and eligibility criteria.
Approval is not guaranteed.
Do I need to own my home outright to get a Homeowner loan?
No. Selina’s Homeowner loan is a second-charge mortgage, which means you must have an existing mortgage in place rather than owning your home outright.
You will also need to meet Selina’s eligibility criteria and have sufficient equity in the property.
Equity is broadly the difference between the value of your property and the amount you still owe against it.
What's the best way to borrow money against my house?
There is no single option that will be best for everyone.
Different forms of secured borrowing have different interest rates, repayment structures, fees, terms and risks.
Before deciding, compare the available options based on your circumstances and consider:
- the amount you need;
- how long you want to borrow for;
- the monthly repayments;
- any fees;
- the total amount repayable; and
- the risk of securing borrowing against your home.
If you proceed with secured borrowing, your home may be at risk if you do not keep up repayments.
Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. Think carefully before securing other debts against your home. If you consolidate existing borrowing, you may be extending the term and increasing the total amount you repay.
