If you read the daily papers you cannot but have noticed that very often there are two or more pages given over entirely to 'loans to homeowners' Beguiling tv adverts, often with household name participants tell us all the advantages of debt consolidation or loans for any purpose available with minimum fuss and bother'

Invariably these advertisements relate to secured loans. A secured loan is available only to a homeowner who can provide security to the lender. This security is known as a second legal charge or more commonly a second mortgage, which ranks in priority behind the first mortgage, usually held by a building society or bank. Taking things to the extreme, if for any reason your home was repossessed because of serious arrears, for example, the holder of the first mortgage would have priority over the sale proceeds and after all associated expenses of the sale, the balance would be available to the holder of the second mortgage before the surplus was passed on to the former homeowner (always assuming that there is not a third charge or similar in force.)

It is because the risk to the holder of the second mortgage is greater, therefore, that the rates charged are higher, and as you will see from a perusal of the advertisements, considerably higher in many cases. Always look for the ‘typical loan rate' which must be referred to in all advertisements and which often has very little resemblance to the interest rate often quoted. In very many cases, we have found from experience and what clients tell us, that for one reason or another the interest rate eventually offered is invariably higher than that quoted - do take care!

Secured loans can be an alternative to other forms of borrowing but basically only where:

1. the amount required is comparatively small - usually under about £15,000 and for a short term of no more than 5 years
2. there is a major penalty required by any existing first mortgage provider which would make a complete remortgage uneconomical
3. there is a definite reason why a secured loan is a viable alternative.

Whilst we arrange a considerable number of secured loans, we do, wherever possible, prefer to recommend a remortgage and broadly speaking if a secured loan is available to you so is a remortgage and the difference in interest rates and overall costs can be high. However, because of tie ins and redemption penalties on mortgages, secured loans are now coming more into their own.

In the past few months, secured loans generally have become a far better proposition than previously.  Excessive redemption penalties have now been removed, and the hideous insurances which were invariably the subject of a hard sell with many providers are also largely dead and buried.

This means that in some cases - particularly where the main mortgage is the subject of a tie in and to redeem would be expensive - secured loans can now be worth considering carefully.  The higher rate of interest on a  secured loan could well be worthwhile in the overall scheme of things, as following this course will enable the secured loan to be paid off with just a small penalty of one month's interest at the same time as the main mortgage, and a fresh re-mortgage taken out.  Doing things in this way could well avoid the high penalty otherwise required on redeeming a mortgage. at an inappropriate time.

However, the terms and conditions of any secured loan considered should be examined carefully, with particular reference to any fees that may be added to the amount borrowed.  Any insurance suggested with the loan should normally be refused as what is being offered can usually be obtained cheaper elsewhere. If you already have, or are thinking about taking out a secured loan other than for the reasons mentioned above we would suggest you consider matters carefully, because in many cases a remortgage is a far better proposition, if it is available without problems regarding existing tie - ins.  Do not discount secured loans, thefore, as in the right circumstances they can be very useful . But we must say that such circumstances are pretty rare, and if you can avoid taking out a secured loan we suggest you do.

We will be pleased to provide any further information you require regarding secured loans generally.