What is a 125 Home Equity Loan?
June 27th, 2009, Written By: Kerri Randall
A 125 home equity loan allows you to loan up to 25% more than the value of your home. That might sound like an amazing deal, especially if you don’t have enough equity built up to take out a regular home equity loan. Sure, you’ll have plenty of money to play with, but there are some precautions you should know about.
In order to qualify, your credit score must be high. Since a 125 loan isn’t based on the equity you’ve built (or lack thereof), your credit score will be used to determine your ability to repay. If your score is low, you’ll need to improve it before applying.
Once you qualify, be prepared for high interest rates. You’re being lent a significant amount more than the actual value of your home, so your lender is taking a much bigger risk than usual. On top of high payments and high interest rates, you don’t get a break on your taxes. You can’t write off interest payments related to loans that are more than 100%.
Perhaps the worst consequence of a 125 home equity loan is when you want to sell your house. You now officially owe more than your home is worth, and good luck selling it for 125% of its value. Even in a good market, it’s highly unlikely to receive that much, and the housing market is definitely still in a slump.
If you’re going to use the money from your loan to pay for something that will greatly benefit you (such as paying off outstanding credit debts or other loans) or that will raise the value of your home (such as renovations), and you are absolutely positive you can meet all of your payments, then don’t be afraid to consider a 125 loan. Just make sure you are aware of the risks (such as being unable to sell your home or losing your home entirely), and read the fine print, since each lender may have different requirements and restrictions.
For more informaiton on a 125 Home Equity Loan, visit LendingTree
Categories: Mortgage Loans
