Though usually called homeowner loans or personal loans for homeowners, the truth is that these loans are better referred to as home equity loans. The name refers to the secured nature of the loan as home equity loans are backed up by the equity you’ve built on your home.

Home equity is the remaining value of the property that is not affected by mortgages or liens. The difference between the value of the property and the mortgage loan amount that is still owed, constitutes equity. After subtracting the remaining liens (if present), the amount you get will be the home equity loan security.

As with mortgages, the lender can resort to take legal action against the property to recover his money if the borrower fails to meet the monthly payments. However, the legal processes in both cases are essentially different as mortgages have a priority on the property over the home equity loans.

Fast Approval Process

When it comes to timing, as opposed to mortgage loans and refinance mortgage loans, homeowner loans have instant approval. Most of the paperwork needed is already prepared due to the previous mortgage loan and thus only some simple checks have to be done.

Depending on the complexity of the property’s appraisal and the condition of the borrower’s credit report, the loan approval process can take any time between 72 business Hs. and two weeks. Some lenders take more time than others when evaluating applications so you might want to ask the estimate delay before applying if you are very short on time.

Lower Rates, Higher Amounts

Since this loan is requested against property, the amount of money you can obtain is significantly higher than other forms of personal loans. However, it will always be limited to the amount of home equity available in your property. There are some lenders willing to lend over this limit but since in that case only part of the loan is covered, the interest rate charged will be higher.

Nevertheless, in both cases, the interest rate charged for homeowner loans is significantly lower than that of unsecured personal loans. This is due to the lower risk involved for the lender when lending against a property’s equity. For larger loan amounts, requesting a homeowner loan instead of an unsecured loan can save you thousands of dollars over the whole life of the loan.