The Basics of the 125 Home Equity Loan

Using a 125 home equity loan has become very popular in recent years. The 125% home equity loan means that you can technically borrow up to 125% of the value of your home. Therefore 25% of the loan is not secured with any type of collateral. This part of the loan is like having a line of credit that you can use. A 125% home equity loan can offer you several benefits. However, while it can be enticing, it may not be as great as you think. There are some advantages and disadvantages to this strategy for everyone. Here are the basics of the 125% home equity loan and how it works.

The Problem With 125% Loans

While the 125% home equity loan program has some benefits, it is not always as great as it seems. In fact, this type of home equity loan has a very big problem that comes with it. This program is great if you plan on living in your house for the entire term of the loan. However, if you plan on moving or refinancing in the future, it can really cause some problems. If you sell the house, you would only be getting somewhere around 100% of the value of the house. Where does the other 25% have to come from to get rid of the mortgage? You will have to come up with this money. 

This has forced many people to end up staying right where they are instead of moving to the house that they really want. If you are considering a 125% home equity loan, make sure that you understand what you are getting into before you sign the contract. 

How They Can Help

Getting a 125% home equity loan still does have some advantages. This type of loan gives you a way to borrow money that you might not otherwise be able to get. 25% of the value of a home can be several thousand dollars. Therefore, getting another 25% without having to put up any collateral can be huge. You might really need the money for a variety of reasons. If your credit is not good enough to get an unsecured loan for several thousand dollars, this might be your only option. If someone defaults on this type of loan, there is nothing that will help them get their 25% back other than going through the legal process to retrieve it. 

When you can borrow 125% of the value of your house, you have many financial doors opened to you. You could potentially consolidate all of your debt into one easy-to-handle source. You would be making one payment that covers your mortgage and all of your debt. Having only one payment to worry about each month can take a huge burden off of you. On top of that, it will allow you to have less money going out because you will probably be paying less interest over a longer period of time. Regardless of what you decide to do with the money make sure that you are making the best decision for your needs. 

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