125 Home Equity Loan

125% Home Equity Loan: Second Mortgage

The 125% home equity loan is a second mortgage. It allows the borrower to borrow more than the value of his home.  As the name suggests, it allows to borrow 25% more than the value of the home. If your home has been appraised at $200,000 and it has a first mortgage of $190,000, the owner can still borrow $60,000. That makes a total mortgage of 125% over the value of the real estate property: $250,000.

The 125% home equity second mortgage is done to consolidate other bills like credit cards or consumer debt with a higher interest rate. The loan allows the borrower to pay off all of his debt. Sometimes it is used to have some extra cash.

Many lenders offer 125% home equity loans. It is specifically offered to homeowners that need a loan but that have not built up equity in their home. Each lender will have their own criteria and guidelines to approve their potential borrowers; however, the most important factor is your credit score. The credit score determines how much you will be able to borrow. Almost all lenders require that you already live in the property that will be financed. Six months is often the minimum period of time to apply to a 125% home equity loan.

Regarding the property appraisal, almost all 125% loan lenders do not ask for one. They just use the purchase price, if it is recent, meaning less than one year. Otherwise a tax assessment is used. In certain cases, lenders use an algorithm to calculate the value of your home. Often this process does not reflect the real market value of your home. However, borrowers seeking for a 125% home equity second mortgage will not have many options.

It is important to get a fixed interest or at least a secure interest rate. This is a relevant factor in whether or not you will get lower monthly payments. Paying off a loan with fixed interest rate can save you tons of money.

If you have had a foreclosure or have a poor credit score, it may be difficult getting a fixed interest rate. However, you can get a 125% home equity loan with an adjustable rate loan. Search for a lender who is willing to help you. It may be time consuming, but it could be worth your time.

Discuss your plans with your financial advisor. Like any other form of debt, a 125% home equity loan has advantages and disadvantages. Make sure you really need it.