Taking out a loan can be a great way to help resolve financial difficulties, or make a large purchase. More often than not, substantial loans will only be granted to those with a good credit rating, or alternatively with security in the form of valuable heritable assets. Many of us would be willing to sign over our homes or land in return for much needed finance, although we may be quite unaware of the extent of the pitfalls awaiting those who fail to make their repayments on time and as requested. In this article, we will look at exactly what to expect from defaulting on a secured homeowner loan, and the ways in which we can avoid these pitfalls.

One of the first questions any lender will ask a prospective borrower is whether he or she has security, that is whether he or she is a home owner. The family home is the largest asset many of us will ever buy, and it is normally by far the most valuable possession we own. On this basis, it is the sole asset that banks and building societies look to as security against any substantial loan amount. Security, in law, functions as an accessory to debt, that is to say that without the debt, the security cannot exist. On the flip side, the security exists in place of the debt, as a means of guarantee against the value of repayments requested and defaulted. Effectively, through granting a security over your house, you are offering the value of your house in consideration of the repayments you don't make, as an assurance that the lender will receive repayment of the amount due, including interest.

The major pitfall of failing to make repayments on a secured homeowner loan is, unsurprisingly, repossession of your property. If you fail to pay back what you are due to the bank, they can obtain a court order to enforce the security against your property by sale. This means that the bank or lender will put your house on the market and obtain the best price they can, before distributing the sums between themselves and other secured lenders. Should there be any remaining value from your house, you will receive this sum. For many, this can be the sign of financial ruin, and finding your way back onto the property ladder can be difficult. Such events have a significant adverse effect on your credit rating, which will remain blemished for around six years. This will make it more difficult to find finance for another property, or indeed a personal or business loan in your name. It is understandable to note that many people aim to pay the mortgage before they aim to eat – without keeping up repayments, you may very well lose the roof over your head and end up with a blemished credit rating which will ultimately make things more difficult in later years should you look to finance any other purchase or seek a short term loan to make ends meet.