125% Home Loans: Facts

There are many reasons why you might be considering the option of borrowing against the equity of your home. Unforeseen expenses, and debt consolidation, whether it relates to credit card debt consolidation, the consolidation of other bills or loans, or some combination of the three, are two of the most common reasons that more and more homeowners are taking out 125% home loans. The promises that a 125% home loan offers, like no-hassle consolidation, extra cash, and the possibility of lower monthly mortgage payments are all very tempting,.

But is a 125% home loan right for you?

The first place to turn for answers about your personal finances should always be your certified financial planner. This article is not intended to substitute for advice from a qualified financial professional, but it can help you in determining whether a 125% home loan is a viable option warranting further consideration. If you are a homeowner with relatively good credit, trying to streamline your finances, considering a 125% home loan makes sense. Here are some facts to help you get started:

1. A 125% home loan allows you to borrow more than your home is worth, as opposed to a traditional mortgage or refinance. In other words, if your home is worth $100,000 and your first mortgage is $90,000, you can borrow $30,000, for a total of $125,000 and therefore shrink your monthly payments.

2. The interest rate that you are able to obtain with your loan contributes significantly to whether or not you actually end up with lower monthly payments. The ideal scenario would be to obtain a mortgage loan with a fixed or secure interest rate, (APR) and some lenders have reported an estimated savings of up to three times more with a simple interest, fixed rate loan to pay off your debt versus simply making the minimum payments on your credit cards or other debt repayment obligations. This is because the interest on credit cards and other types of credit lines is compounded daily, which means that for each day your credit card has a balance, you are paying on the interest, instead of directly toward the balance that you owe. This adds up to more money for the credit card company, and can also mean that it will take you longer to become debt free.

3. If you are not able to obtain a fixed rate loan because of less than perfect credit or some other reason, you still have options. If you are eligible to qualify for an adjustable rate loan, it can still save you money in the long run, since your interest rates may become lower over time, and you will be able to consolidate your bills.

Several lending companies offer loan programs for people with damaged credit, and many offer the option of prequalification online. Regardless of your credit current credit score and debt repayment obligations, your financial planner and real estate professional can help you find a debt repayment solution that fits your lifestyle and needs.