Considering secured home loans as a way to help bring your debt back into check? In that case, there are some things you should know about secured home loans and ways to minimise the potential risk of losing your home.
First, consider – that’s a scary sounding consequence, but it’s a fact. Many lenders prefer secured home loans to unsecured personal loans because the risk of them losing their money is far less. Because you put your house or other property up as collateral to guarantee your repayment of the loan, if you don’t pay back a secured loan, you give up the collateral to the lender. Given that as a consequence, there are ways to reduce the risk that you’ll lose your home.
– The first, of course, is to be certain that you can manage the monthly payment on any secured home loans for which you apply. If your purpose in seeking a secured home loan is to reduce the amount of your monthly loan and credit payments, then your very first step should be to make a fearless accounting of your budget. Put the bills aside for a moment and concentrate on your income. After you’ve totaled up all your income, subtract all your fixed monthly expenses from it – again, leave any credit payments out of that accounting. Include only those expenses and debts that you’ll still have to pay if you use a debt consolidation secured home loans to wipe out your credit debt. What’s left is how much you can afford to pay out each month toward a loan repayment. Any loan that would require a monthly repayment of more than this amount is an invitation to disaster.
– Next, consider automatic payments drawn directly from your bank account. By setting up payments by direct debit for your loan, you eliminate the risk of forgetting the date and making a late payment, thus incurring late fees. Direct debit works best in conjunction with direct deposit of your wages and income, of course.
– Close the accounts that you pay off with the money from your loan. Believe it or not, the single biggest reason that people get into trouble when using secured home loans for debt consolidation is that they can’t resist the temptation to use their credit cards once they’ve cleared the balance. If you run up your credit debts again, you’ll be saddled with double the debt – the loan payment AND your credit card payments. Avoid temptation. Close the accounts.
– Insure yourself against disaster. Let’s talk scary facts for a moment here. No one likes to think of the bad things that might happen – but being prepared for them can make the difference between weathering the storm or capsizing in it. Carrying the right insurance and the right amount of insurance can allow you or your family to pay off outstanding loans in the event of an accident, job loss or worse.
PPI (Payment Protection Insurance) is one of those tender subjects in UK finances at the moment. The idea of having an insurance policy that will pay your loan payment in the event that you can’t is attractive, but the OFT warns that consumers need to be wary shoppers. Some lenders who also sell PPI are accused of charging as much as 30% of the face value of the secured loans for insurance premiums. That means that on a loan of £7,500, you could pay as much as £2,500 in premiums for PPI. Even worse, many policies exclude some of the most likely problems from coverage, so you could find yourself out of work with a pulled back muscle – without the coverage you expected to pay your loan payments.
Still, if there is any loan that you DO want guaranteed coverage for, it’s the loan that is guaranteed by your home. If you decide that PPI is a worthwhile investment when you’re looking into secured home loans, then take these tips from the OFT.
– Visit an insurance broker if you don’t have time to shop around – you are NOT required to accept the PPI offered by the lender.
– Read the small print and check that PPI is not automatically included – it should be optional
– Check out the common exclusions to make sure all your circumstances are covered
– When taking out a loan or a credit card over the phone make sure that you listen carefully to what you are signing up to
– Ask for a copy of the insurance cover document
– Check that the insurance will cover the whole debt and not just minimum payment