`Line of Credit' Schemes

Where from? Banks, building societies, insurance companies, finance houses.

How they work You arrange a secured loan but you don't have to take all of it at once. Instead you borrow when you like, what you like up to the agreed 'credit limit'. With some schemes, you even get a cheque book to use when drawing on the credit. You are charged interest just on the amount actually borrowed and you pay off the loan and interest in monthly payments - either of a set amount, or any amount above a specified minimum (such as three per cent of the amount borrowed or £145 if greater). As you repay the loan, your unused credit rises again, so you can borrow more.

Points to note You'll have to pay for a surveyor to value your home and there'll also be legal fees. There might be an arrangement fee - say, one per cent of the credit limit.

Verdict A flexible and convenient way of tapping into the equity in your home. But an unsecured loan would probably be better if you want to borrow small amounts, and an extension to your mortgage would be better for large one-off sums (for example, to pay for home improvements).

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Secured Loans And Second Mortgages

Where from? Some building societies (may only be offered to existing borrowers), banks, finance houses.

How they work A secured loan is any loan which gives the lender a claim on your property - usually your home - if you fail to keep up the repayments. Because the lender, as a last resort, can force you to sell your home so that they can get back their money, interest rates for secured loans should be lower than for comparable unsecured loans. A mortgage is a secured loan. A second mortgage is the same as a secured loan except that the lender is queuing up for repayment behind your existing... see: Secured Loans And Second Mortgages

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