125 Home Equity Loans
The amount of equity you have in your home depends on two factors. One is the amount you owe and the other is the value of your home. The amount you owe is the total of all debts that are secured by your home. The value is usually determined by an appraisal.
Traditionally, home equity loans are limited to the amount of equity you have. For example, if your home has been appraised at $300,000 and you have a mortgage of $200,000, then your home equity is $100,000.
Request a free Home Equity Loan quote >>
Some lenders will allow you to borrow on equity you don’t have. A 125 home equity loan will allow you to borrow up to 125% of the value of your home. So, for example, if your home has been appraised at $300,000, you could borrow up to $375,000 against it. If you already have a mortgage of $200,000 you could still borrow $125,000.
It makes sense to take out this type of loan if you have the money earmarked for a specific project that will bring long-term benefit. An example would be home improvements that would increase the value of your home.
This type of loan is inherently risky for both you and the lending institution. The lenders cover this risk by charging higher interest rates and fees. You can minimize the risk by taking the time to understand the terms of the loan.
Request a free Home Equity Loan quote now >>
One of the big disadvantages with this type of loan is that you can’t sell your home until it has appreciated enough in value to match the loan amount. If you plan on living in the same place for many years this shouldn’t be a problem.
Another consideration with this type of loan is the tax implications. You can deduct the interest on a home equity loan but only for a loan amount equal to the value of your home. Don’t count on a deduction for the entire amount if the loan amount exceeds the value of your home.
Also, take a look at housing trends in your area before you sign on to this type of loan. You’re betting that the value of your home will increase over time. In some areas, housing prices are stabilizing or even falling. One indicator of an overpriced housing market is rental prices that don’t match the housing costs. This could be an indication that you’re in a "bubble" region. When the bubble bursts you don’t want to get left holding the bag.
Request a free Home Equity Loan quote today >>
