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A homeowner loan is a secured loan that uses the equity that you've built up in your home as collateral. Equity, if you're not familiar with the term, is the amount that you've invested in your home while making payments on your mortgage; it is often represented as the difference between how much you still owe on your property and the total value of the home.

A number of banks, finance companies, and other lenders offer good deals on homeowner loans, letting you borrow money based upon the available equity of your house. In order to help you decide whether a homeowner loan is right for you and your specific situation, please consider the following information.

Advantages

When you apply for a homeowner loan, you're likely to be offered a much lower interest rate than you would for some other loan types due to the nature of the collateral that is used to guarantee loan repayment. Many of the closing costs and other fees for the loan are generally paid up front, but with the right lender you may be able to incorporate these costs into the loan itself.

Additionally, you may find that there are some tax advantages to be had with this type of loan that you would not be eligible for otherwise. Careful planning can help make your homeowner loan flexible to your specific needs, enabling you to repay the loan at your own pace so that you can save money while getting out of debt sooner.

Disadvantages

Depending upon the lender, some homeowner loans can have steep penalties for paying off the loan too early, up to 10% of the amount borrowed. Some loans, known as "balloon loans", allow you to only pay a smaller amount each month such as the interest that has accrued; the problem with this is that when the balloon payment comes due at the end of your loan term, you'll have a much larger amount to pay than you might be expecting.

You may also find that some of the opening costs, closing costs, broker fees, and other costs and charges that are associated with this type of loan are more than you are expecting, and in most cases these costs are due out-of-pocket before the loan is ever issued.

Cost of Your Loan

The total cost of your homeowner loan will depend on a number of factors, including your personal financial situation, your credit history, the amount you wish to borrow, your monthly and annual income, and the repayment terms. These factors can affect the interest rate that you are charged, the terms by which the loan must be repaid, and the additional costs and charges that are included with your loan.

In order to get the best deal on the loan that you take out and make sure that you don't have to pay more overall for your homeowner loan, you should take the time to shop around and compare the offerings of various lenders so that you can determine which one has the best loan deal for you.

Bill Stone writes for Direct Online Loans who help homeowners find the best available loans via the http://www.directonlineloans.co.uk website.