125% Home Equity Loans - 3
Things to Know |
By L. Sampson |
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Lenders that offer 125% home equity loans allow you to borrow the
full amount of the equity you have in your home, plus an additional
25%. For example, if you have $10,000 of equity in your home, and
you take out a 125% home equity mortgage, you would be able to
borrow $12,500 on your home. This is beneficial for home owners who
do not have a lot of equity in their home but want to borrow money
to make home improvements. If you are considering taking out a 125%
home equity loan, there are some things you need to know.
You Will Need Great Credit
Because the additional 25% of
your loan is unsecured, lenders will generally only offer 125% home
equity loans to borrowers with good credit histories.
Selling Your Home May Not Be an Option
If you were to try
to sell your home, you would have to pay off both your original
mortgage and your home equity loan. Because you have borrowed more
than your home is worth, you may not be able to sell your home until
you've repaid at least the additional 25% that you originally
borrowed.
Unsecured Loans Carry Higher Interest Rates
Because the extra 25% is not secured by any collateral, the lender
will consider the loan to be higher risk than a normal home equity
loan. This means that you will most likely be charged a higher
interest rate than you would if you took out a traditional home
equity mortgage.
Borrowers should be certain that they can
afford the monthly payments of their home equity loan. Keep in mind
that the monthly payments for this loan are in addition to your
current mortgage payment. |
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