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.
Article Source: http://EzineArticles.com/?expert=L._SampsonBy L. Sampson
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