125% Equity Loan - Can It Really Help You? By John Phu |
Home equity loans have been used for coping up with the finances for all sorts of needs, as they are easy to get and can be repaid soon if the person's income is good. Among these home loans, 100 % home equity loans have been the most popular, as they have helped people get cash equivalent to their house value. Now, many people are being attracted towards the 125% loans that are being offered by various companies.
Some people have apprehensions regarding these loans as they do not comprehend the terms and conditions involved. The question is whether the 125% loans can be actually helpful or are just a trap. The answer is that, like every other thing, these home loans have their positive and negative aspects, and it is up to the person to decide whether he can manage it or should he refrain from taking the risk.
The term 125% loan is explanatory in itself as it allows you to borrow a sum of money that is equal to the value of your house plus an extra 25 % of that value. This extra money can help you in a lot if ways and it is not based on any collateral. You can use the money to get out of a previous debt, pay for college education or use it in case of an emergency.
However, as with all other home loans, this one is not without risks as well. There is no dearth of lenders and you have to be careful about who you choose.
Most of the people, who are interested in being lenders for a 125 % loan, charge a 10% extra for choosing a lower interest rate than what they have to offer, a circumstance which can put a financial crunch on the borrower. Moreover, in these loans, there are origination charges, closing charges and other such financial costs.
Secondly, 125% loans specify that you cannot move before repaying the loan. If you wish to sell the house, you have to repay the loan, which is quite impossible since by selling the house, you will just get the amount equal to the price of the house. Then, you will have trouble getting the money to pay off the additional 25 % you borrowed.
One more problem with these loans is that if you have opted for adjustable rates at the beginning, you might have to pay a lot of money to keep up with the interest rates. If they go up by 30 to 40 % in the course of two years, one might find it impossible to pay the installments with his current income and might end up losing the property.
While 125% equity loans are quite appealing, you must consider all the pros and cons involved before getting into the procedure. The best course would be to opt for such loans only when facing an emergency and then try to get the best offer at the lowest interest so that you can pay off the debt easily, without having to lose your house.
For more information about 125% equity loans, please visit http://www.125equityloans.net Article Source: http://EzineArticles.com/?expert=John_Phu |
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