125% Home Equity Loans - Danger of Borrowing More Than Home's Equity

125% Home Equity Loans - Danger of Borrowing More Than Home's Equity
By Carrie Reeder

Because of home equity loans, homeowners are able to acquire extra money for a wide variety of purposes. Moreover, these loans make it possible to tap into the equity built without selling your home. There are many home equity options. Aside from getting a loan, homeowners may opt for an equity line of credit. Additionally, there is the 125% home equity loan option.

What is Equity?

The concept surrounding 125% or no-equity home loans is very simple. Ordinarily, homeowners would acquire equity loans that equal the amount of equity built in the home. Before going any further, it is important to understand how a home's equity is determined.

Two factors contribute to a home's equity, rising home values and amount owed to the mortgage company. If a homeowner's property is valued at $200,000, and they owe the mortgage company $120,000, the home's equity totals $80,000. In this scenario, the homeowner may obtain a home equity loan up to $80,000

How 125% Home Equity Loans Differ

If applying for a traditional home equity loan, homeowners may obtain a dollar amount not to exceed the home's equity. This money can be used for home improvements, starting and operating a business, retirement, debt consolidation, etc.

On the other hand, if a homeowner is approved for a 125% equity loan, they are able to borrow more than their home's equity. Because a portion of the loan is unsecured, many lenders steer clear of these sorts of loans. However, if your credit rating is high, several mortgage lenders are ready to offer a no-equity loan.

Reasons to Beware a 125% Home Equity Loan

125% home equity loans are more fitting for homeowners who require a large sum of money. Typically, these loans are common among those attempting to start a business. Moreover, these loans are beneficial for homeowners embarking on major home improvement projects.

If home prices continue to rise, 125% home equity loans will pose little threat. On the other hand, if the housing market takes a sudden nosedive, those who accept 125% home equity loans will likely owe more than their homes are worth.

Shady lenders will offer 125% equity loans because it's a win-win situation for them. If a homeowner defaults on the mortgage, the lender forecloses on the property. However, because the amount owed exceeded the home's value, homeowners are obligated to pay mortgage lenders the difference.

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125% Home Equity Loans - Danger of Borrowing More Than Home's Equity

What is a 125 Home Equity Loan?

What is a 125 Home Equity Loan?
By Lynda Nelms

125% Home equity loans are second mortgages that literally think "outside of the box," because they allow homeowners to go beyond their homes' equity to finance things that typically require a significant amount of equity. The 125% home equity loan is a 2nd loan that is secured by your home and personal credit.

The 125% loan subordinates to the first mortgage, just like regular second mortgages do, but since the balance of the new loan exceeds the value of your home, your credit becomes an essential element for loan approval. Any mortgage added that subordinates to your existing mortgage, and also exceeds the value of your property is considered to be a 125% home equity loan.

125 Home equity loans are 2nd mortgages that are secondary to 1st mortgages, but they don't have to reach 125% of the home's value to be considered a 125% loan. Any loan that has a combined loan to value between 101-125% is qualified as a 125% second mortgage.

If the mortgage lender is required to foreclosure because you haven't made the mortgage payment for a period of months, the lien holder will receive no recourse, because there is no equity. This is the primary reason that the interest rates are so much higher with 125% equity loans.

Unique Niches of a 125% Home Equity Loan:

Primary Use of Funds: 125 home equity loans are used to consolidate high rate credit, installment loans, and home improvement projects.

125 Loans offers a single lump sum disbursement of funds at the close of escrow. You can't borrow, and re-borrow money on the same loan, like you can with home equity credit lines.

125% Home equity loans do not offer 30 year fixed rate terms
Re-payment term options (15 year, 20 year or 25 year terms)
Home equity terms are set for a close-end mortgage with a specific number of monthly payments that is charged with a fixed interest rate.

125% home equity loans do not allow interest only payment options
All 125% loans require fully amortized payments that consist of both principal and interest.

No "balloon" payment features with 125% loans
Balloon notes are not allowed when exceeding the value of the home.

The interest paid on a 125% home equity loan is tax deductible to 100% of the value. In some cases interest paid for home improvements may grant tax deduction exceptions, but consult your tax advisor.

Since the mortgage lenders' risk is more significant, these home equity loans will be offered at a higher interest rate than 1st mortgage rates. The interest rate is the issue many homeowners get flustered about when they are considering taking out a loan that exceeds their homes' value. Don't compare your 1st and 2nd mortgage interest rates.

They are apples and oranges. Your 1st mortgage won't let you pay off high rate credit card debt, while taking the loan amount beyond the homes' value.

More important than the interest rate is the amount of money you stand to save each month with a 125% home equity loan. If this loan saves you enough each month to finance a nice car, then you might want to grab the keys and start the 125 engine.

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What is a 125 Home Equity Loan?
By Lynda Nelms

125% Home Equity Loans

125% Home Equity Loans
By L. Sampson

Home equity loans are second mortgages and involve borrowing money against a home's equity. In most cases, homeowners obtain loans that correspond with the equity they have in their house. However, it is possible to acquire a second mortgage for more than a residence's worth.

What is the 125% Home Equity Loan?

The 125% loan allows homeowners to receive a large sum of money to pay off consumer debts, make home improvements, or debt consolidation. These types of loans are beneficial for individuals who need quick cash, but do not have sufficient equity in their homes. For the most part, obtaining the loan is fast. Sometimes the homeowners can receive funds in as little as 5 days.

The Benefits

Many people choose this type of loan as opposed to refinancing because the process is simpler, and homeowners are not required to pay huge fees. Although this type of loan creates a second mortgage, they are the best method for paying off high interest credit cards and other bills.

The interest rate on it is considerably lower than credit cards. Whereas it would take 10 to 15 years to completely pay a credit card balance, equity loans are paid within five years. In the long run, they can be a smarter move.

Risks

Aside from providing homeowners with fund to pay off credit cards and so forth, the 125% home equity loans poses certain risks. The interest rate on these loans is very high. This loan is a wise choice for those who can afford to make an additional monthly payment. On the other hand, individuals without extra money should think twice before placing their house on the line.

The 125% home equity loan uses the home as collateral. If a homeowner defaults on the second mortgage, they could potentially lose their home. Another problem exists when homeowners use a home equity loan to pay the balance on credit cards, and then accumulate more debt. Homeowners interested in taking out a home equity loan should carefully weight the pros and cons, and compare lenders to find the best rate.

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125% Home Equity Loans
By L. Sampson

Low Interest Home Equity Loans - Information On The 125 Percent Home Equity Mortgage Loan

Low Interest Home Equity Loans -
Information On The 125 Percent Home Equity Mortgage Loan
By Tim Gorman

Low interest home equity loans are the fastest, quickest and easiest way to obtain money. However, always be on the lookout for suspicious lenders of low interest loans. Home equity loans can substantially decrease your monthly payments. Find out your credit rating before you search for a loan.

Mortgage lenders are offering great interest rates and easy terms on home equity loans, even if your credit history is less than perfect. Mortgage rates can change daily, and sometimes even multiple times per day depending on economic factors.

For accurate mortgage rate comparisons, try to get all quotes on the same day! Mortgage can be defined as a loan which will provide monetary help to purchase any real estate property. The borrower can make his payments regularly to the lender.

Borrowers requesting a home equity loan for bad credit should be aware that the interest rates advertised by a particular lending institution such as a bank, or mortgage brokerage will not apply to them. The borrower will receive a higher interest rate, as interest rates are directly determined by credit score. Borrowers can select from fixed or variable rate home equity loans that offer features like interest only to reduce your monthly expenses.

These low interest home equity loans enable homeowners to just pay the interest due each month for the specified draw period. Borrowing money is expensive generally, with lenders asking you to pay for the privilege of taking out a certain amount of money. The interest a lender will require you to pay for their lending is mainly linked to your personal circumstances.

If you have a good credit score, home equity lenders will offer you a higher loan-to-value ratio, a better interest rate and a higher loan amount. Such loans are referred to as 125% home equity mortgage loan and are very useful when you require large loan amounts.

A 125% home equity loan will have a higher interest rate, as the underlying asset only covers a portion of the loan. A home equity loan is the amount of lump sum money you get. The interest rate on a home equity loan is more than a 1st-mortgage interest rate.

Rates can be fixed or adjustable. Signing a contract means you should fully understand how fees will affect your credit plans. Rates, fees, and conditions of low interest home equity loans differ greatly between programs. If you are serious about entering into a home equity loan, you should examine the loan program in its entirety.

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Low Interest Home Equity Loans -
Information On The 125 Percent Home Equity Mortgage Loan

125% Equity Home Loans

125% Equity Home Loans

By Levetta Rivera

If you are a homeowner in need of a home equity loan but you have not yet built up any equity in your home, don't despair. A 125 percent equity home loan may be the answer.

A 125 percent equity home loan is a second mortgage loan that allows you to borrow up to 25% more than the value of your home. For example, if your home is worth $100,000 and you owe $100,000 on the mortgage, this loan program would allow you to still borrow up to $25,000.

The 125 percent equity home loan is offered by various online lenders. Each lender has their own qualification and loan term guidelines but generally this is a credit score driven loan program. Credit score driven means that you have to have a certain credit score to qualify for the loan.

In addition, your credit score usually determines the maximum loan amount you may qualify for and the maximum cash in hand you may receive. Also, some 125 percent equity home loan lenders may require seasoning on the length of time you have lived in your home. Three months is normally the minimum.

When it comes to a property appraisal, most 125 percent home equity loan lenders do not require you to obtain one. They generally will use the purchase price of your home as the value if you have lived in your residence for 12 months or less.

If you have lived in your home over 12 months, a recent tax assessment, simple drive-by appraisal, or automated value model (avm) can be used. An avm is a computer generated assessment of your home's value which is based on recent home sales of comparable houses in your neighborhood.

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125% Equity Home Loans