The origin of the 125 percent home equity loan was the ever increasing demand for borrowing. As the name implies, this loan will grant the borrower the right to borrow up to 125 percent of his home’s value. Let’s say, for example, that one’s home is worth $100,000 and his mortgages also total $100,000; the 125 percent loan, in this case, would allow him to borrow an additional $25,000. Before applying for one of these loans, there are four important things to keep in mind.
What is a 125 Home Equity Loan?
One of the primary reasons that people end up choosing this type of loan is because the process is easier than refinancing and has fewer attached fees. This type of loan will create a second mortgage on one’s home, but it is a strategy that can be used for paying down high interest debt. The interest rate on this type of loan is usually much lower than the interest rate on credit cards.
What Type of Situation Calls for Using This Loan?
If a person finds himself trapped in a corner financially due to an unforeseen bill or some other severe adversity, this loan may be a good choice for him as an alternative to losing his valuable home. However, before applying for this type of loan one needs to lay out a detailed and organized plan for paying back the loan.
The easiest way to find one of these loans is to call the banks in the person’s area and ask about 125 percent home equity loans. Most of the institutions around probably do not. In reality, one will find that it is simpler and less time consuming to secure one of these loans from an online bank. If one uses an online bank, it is unlikely that he will ever actually meet the lender face to face.
Risks Associated with 125 Home Equity Loans
Before undertaking one of these loans, be sure to acquaint oneself with its riskiness.One of the most important reasons to not get this loan is that it will make selling the borrowers house very difficult. Furthermore, one will not be able to take a tax deduction against the 125% home equity loan if it ends up surpassing the market value of his home. However, this may still be a good option for a person if he can use this short term debt to improve his financial standing.