If you Take Out a Secured Loan, Does it Prevent you from Selling your House?

Taking out a secured loan could be one of the biggest financial decisions you make in your life. Because a secured loan is secured against the value of your home you need to make sure you choose the right product. A secured loan will not prevent you from selling your house, but it could hamper you in other ways. Here we look at some of the issues.

If you want a secured loan but think you may sell your home before you have repaid the loan in full you should find a secured loan that is flexible when it comes to repaying early.

This type of loan is secured against your current home so if you want to sell, whether to move to anotherhome or sell it outright, you will have to repay the secured loan. Because of this you should look for a flexible secured loan product that will let you repay early without penalty. Bear in mind that almost all fixed rate secured loans will charge a penalty so take this into account when deciding on how long you fix for.

If you are applying for a secured loan and think you may sell in the coming years it is advisable not to borrow beyond the value of your home. If your mortgage and secured loan combined are worth more than the value of your home this may cause complications when you decide to move on.

On a similar note, beware of negative equity. House prices have risen significantly in recent years but all the signs are of a slowdown in the housing market. If house prices fall you could easily find yourself in a position where your mortgage and your secured loan are worth more than your home's value.

When it comes time to sell you will have a couple of options. If you are selling outright you can simply use the proceeds from the sale to pay off your mortgage and your secured loan.

If you are moving on to a new home you will need to remortgage so your best option will be to find the cheapest remortgage available and borrow enough to to pay off your existing mortgage and secured loan, and cover the purchase cost of your new home. Again, be aware that paying off mortgages and secured loans early can attract heavy redemption fees. You may also be liable for an exit fee on your mortgage.

There is no reason that a secured loan should prevent you selling your home, unless you over-borrow or have negative equity. However, with a little bit of care and foresight you should easily be able to avoid these scenarios.