125 Home Equity Loan

125% Home Equity Loan: Can It Really Help You?

Lenders are making the market for new loans sound so good. They offer 125% home equity loans which allow you to borrow the full amount of the equity you have in your home, plus an additional 25%. If you are considering taking out a 125% home equity loan, there are some things you need to know.

125 Home Equity Loans

If you were to try to sell your home, you would have to pay off both your original mortgage and your home equity loan. Because you have borrowed more than your home is worth, you may not be able to sell your home until you’ve repaid at least the additional 25% that you originally borrowed.

Some companies actually want to lend you more money than your house is actually worth. With other lenders, it can actually be a little difficult to get 80% of the value of a house. Why are these agencies trying to push extra money?

A number of these companies charge 10% if you want to get a lower rate of interest than what is initially offered. While they offer lower rates than what credit cards usually go for, it actually may not be much more. Plus, there is an origination fee, closing costs, and more.

With the extra charges, and owing considerably more than your house is worth, you can plan on not moving anytime soon. This puts you in a negative equity situation. It is possible, in a day of unstable housing markets, that your house could also be devalued. It also means going into greater debt.

It will also take you a few years just to recover from the various expenses of the mortgage. And getting the downpayment for a new house while you owe so much. If you still want to consider a 125% mortgage, then be sure to compare one company’s product with another.

Unsecured Loans Carry Higher Interest Rates

Because the extra 25% is not secured by any collateral, the lender will consider the loan to be higher risk than a normal home equity loan. This means that you will most likely be charged a higher interest rate than you would if you took out a traditional home equity mortgage.

Borrowers should be certain that they can afford the monthly payments of their home equity loan. Just keep remember that the monthly payments for this loan are in addition to your current mortgage payment.

Also read:
Bad Credit Debt Consolidation Loan
Bad Credit Home Mortgage Loan
Home Equity Calculator