If you have excellent credit you may be eligible for a mortgage that allows you to borrow up to 25% more than the value of your home. For example if your home is worth $100,000, you would be able to borrow up to $125,000. A 125 home equity loan can be difficult to find because it’s a high-risk proposition for the lender. State regulators have been suspicious of the practice so laws regarding 125 home equity loans vary widely from state to state.
The advantage with a 125 home equity loan is easy to see, you get more money in your pocket right up front. With real estate prices rising dramatically, this is a way to cash in on future equity. Another benefit shows up on your tax bill. Interest on your home mortgage is deductible but interest on your credit card debt is not. In some cases, you could save not only on the lower annual percentage rate (APR) but also deduct payments that you couldn’t otherwise.
Before you take out a 125 Cash Out Loan, you should think about how long it will be before you sell. If you plan on selling quickly you could have to come up with a chunk of cash to pay off the loan at closing time. If you plan on staying in the house for a number of years the chances are pretty good that rising home prices will increase your equity enough to allow you to cover the entire 125 home equity loan in the selling price.
Another reason to consider the amount of time you’ll keep your home is pre-payment clauses. Some 125 home equity loans include a penalty if you pay off the balance before the end of the loan term. You can get a discount on interest rates by allowing these pre-payment penalties but it’s a gamble.
When you shop around for your refinance loan be sure to count all the costs before you decide on a lender. The annual percentage rate (APR) doesn’t include costs such as closing costs and other fees such as attorney fees, filing fees, title search, taxes and insurance.
Some lenders also charge points. One point is equal to 1% of the amount of the credit line and the points are paid when you close on the loan. They aren’t added into the interest rate. Generally the more points you pay up front, the lower rate you can expect on the entire loan.
Remember any time that you increase your monthly payments, you’re increasing the risk that you won’t be able to meet those payments. Before taking on bigger debt carefully check all the conditions to make sure you can live with them.
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