fUnderstanding the concept of a home equity loan
A home equity loan is like a line of credit that allows you to borrow money, using your home's equity as collateral. The collateral is property that you pledge as a guarantee that you will repay a debt. If you don't repay the debt, the lender can take your collateral and sell it to get its money back. With a home equity loan, you pledge the equity of your home as collateral. Equity implies the difference between the worth of your home and the debt you owe in mortgage (or mortgages in case there are many of them)
What are 125% home equity loans?
If you are looking to raise some money and your home is worth a good deal more than the amount you still have borrowed against it then you might want to consider a
125% home equity loan. Mortgage finance is the cheapest borrowing available to most people, and it makes good sense to use your property to raise money rather than taking more expensive loans and credit from elsewhere.
How does a 125% home equity loans
The way a
125% home equity Loan works is this. The lender looks at an appraisal of the value of your home. That value is the figure that the lender uses to work out what he can lend. So if your home appraisal is $100,000 and the lender will go up to 125% of the appraised value, that means the lender is prepared to lend up to $125,000 on your home. If, say, you still owe $60,000 from your first mortgage then that is taken off the total possible loan amount giving ($125,000-$60,000) which equals $65000 as the maximum amount you can raise in the new loan. Lenders will also want to look at what you earn and any other loans you have to check how big an equity loan you can afford to pay back.
Reasons why you should opt for a 125% home equity loan
1. For borrowers with better credit who have a need for funds
in excess of available home equity
2. Loan amounts up to 125% of the value of the home
3. The 125% home loan is a perfect way to consolidate your bills.
This loan allows you to pay off all of your credit cards, consumer
loans, and other bills, combining those outstanding balances into
one low monthly payment. You can also get cash out to use as you
wish and still have a lower total payment!
4. If the amount you borrow doesn't exceed the fair market value
of your home (or up to $100,000 for a couple), there may be some
extra tax deductions as well. Tax breaks should be a pivotal reason
underlying your decision to opt for a 125% home equity
loan.
