By Frank Kelly |
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A secured home loan differs from an unsecured loan in that the
secured loan borrows against one's home as collateral, thereby
reducing the risk to the lender.
As such, secured home
loans often offer better interest rates than unsecured loans,
but offer higher risk to the borrower, as defaulting on these
loans can have greater consequences, such as fines, or even
possible repossession of the home originally put up as the
secured collateral (subject to the amount of the loan, of
course).
As the interest rates for secured home loans are
usually significantly lower than unsecured loans, more of the
monthly payment goes towards paying off the capital, rather than
paying the accrued interest.
The monthly payments are
often more flexible in secured loans, affording the borrower
more leeway in working out a payment plan that fits his or her
needs. However, care must be taken not to use this as
justification for taking out such a loan, as it is a financial
contract between lender and borrower.
There can be a
number of reasons for taking out a secured loan, such as debt
consolidation of high-interest loans, financing for remodeling,
or repayment of college or car loans. Most lenders offering
these types of loans recommend loan repayment insurance, to
guard against an inability to pay on the loan for a time due to
factors such as illness, losing a job or other unexpected
occurrences.
Before taking on a substantial loan such as
a secured home loan, a careful analysis of personal finances is
in order. Having a friend or an accountant or finance officer
assist in this process can save trouble and headaches later, as
they may bring up issues and/or expenditures unthought-of,
issues such as examining how much is spent on morning mochas at
a favorite coffee shop An outside perspective can often
help clarify these matters so a better-informed decision can be
made.
If proper planning and care is taken, a secured
home loan can be a valuable tool for managing personal debt.
Talking to a loan officer or financial advisor at a major
lending institution can help make these possibilities a reality,
and can be a step towards the realization of financial freedom. |
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