Real Estate

Disadvantages of a 125 Home Equity Loan

The 125 home equity loan is just what it sounds like. A traditional home equity loan can be for up to 100% of the equity that is in your house. 125 home equity loans provide you with an additional 25% on top of the home’s equity.

125 home equity loans are second mortgages. Borrowers have regular mortgages to pay every month in addition to the 125 loan. The amount that can be borrowed will be 125% of the appraised value of the home minus the amount that is being paid on the first mortgage.

This type of loan can be very advantageous to homeowners who need a large sum of money, but do not have sufficient equity built up in their home to cover their cash needs. Homeowners may want to do some major home improvements, pay for their children’s college education, have unexpected medical or other emergencies come up, want to start a business, or have other situations where cash is needed. A 125 home equity loan also comes with several potential disadvantages as well.

The most advantageous thing about a 125 home equity loan is providing homeowners with potentially large sums of cash that they need. A 125 home equity loan will have a lower interest rate than a credit card or personal loan would. Part of the interest on a 125 home equity loan will most likely be tax deductible, which is not the case with personal loans or credit cards.

There are also several disadvantages to 125 home equity loans. The first big disadvantage is there will be closing costs to take into consideration Closing costs can run several thousand dollars and there may be other fees as well.

125 home equity loans come with higher interest rates than for a regular home equity loan. So higher interest rate charges is another potential disadvantage. However, the rate of interest will still be less than most credit cards or personal loans.

Another potential disadvantage for 125 home equity loans is putting the homeowner is a tough situation when it comes time to sell the home. If values on houses depreciate and the homeowner needs to sell, they will have to pay the lender back on the 125 home equity loans. They already received 25% excess on the equity, and if the value on their house falls they will have even more of a shortfall to make up.

125 home equity loans can be very positive, but there are some potential negatives to consider as well. Before you decide to apply for one, be sure to review all of your options. You may want to consult with a financial expert to help you with your final decision as well.

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