Homeowner loans can be a quick and easy way to finance major investments and purchases. With home loans, you can tap into the value of your biggest asset in order to pay for things that are important to you. Those 'things' are virtually unlimited - you don't have to account for how you spend the money you borrow against your home to anyone but yourself. It can as easily be spent to finance a year trotting across the Continent as it can to pay for your education, make improvements to your home or pay for a new car.
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With all the loan products available, nearly anyone who owns a home can find a loan company in the UK to offer them a home loan. The wide range of UK lenders who will be happy to advance you money on the security of your home also means that there's a lot of competition for your business. And that means that if you shop around, you can find some outstanding deals on home loans when you need one. Unfortunately, it also means that there are many loan companies offering products with lots of hooks and traps in them. To help you avoid those traps, here are five things to watch out for when you're shopping for home loans.
1. Look beyond the APR.
While the APR is generally considered the single best way to compare one home loan with another, the way that APRs are calculated is not quite standardized. Unscrupulous lenders have found ways to 'hide' charges from the APR calculation, making their loans a bit more expensive than the APR would lead you to believe. A better calculation for comparing loans is total loan cost which takes into account the repayment of the loan, all interest charges and other fees that will be paid before you're done with it.
2. Be careful of repayment insurance.
Repayment insurance is meant to assure you and the loan company that your loan will be paid off in full if something should happen to your ability to make the payments. Some lenders will offer you repayment insurance through the company that they choose - often at rates so high that you'll pay nearly as much as you borrowed in the first place. Shop for repayment insurance just as you do for the loan itself. You are not ever obligated to accept the repayment insurance offered you by the loan company or bank.
3. Know all of the fees you'll have to pay up front.
Arrangement fees - sometimes called origination fees - are paid when you apply for a loan. In some cases, those fees will be due whether you are approved for the loan or not, and whether or not you accept the loan. Some of those arrangement fees can add up to £700 to the total cost of your loan.
4. Check into how interest is calculated and compounded.
The way that interest is calculated can save or cost you a surprisingly large amount of money. If interest is calculated annually, you'll pay far more in interest fees than if it is calculated daily. If possible, check your expected monthly loan repayments on the loan company's own loan calculator for comparison purposes.
5. Exit fees can make it difficult to get into a lower-cost loan arrangement later.
Checking the exit or early repayment fees on the loans you're considering can be especially important if you're shopping higher cost home loans because of temporary credit difficulties. If you hope to transfer to a lower interest loan when you can qualify for one, then you'll want to be certain that the exit fee doesn't make it impractical to do so.
You can compare all facets of home loans at moneyeverything.com, from arrangement fees to APRs. Remember, no matter what your situation, you'll get the best home loans possible by shopping around and comparing loan rates and terms.
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