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The 125 percent
loan
Almost everyone needs a loan to help
pay for a property. But wouldn’t
it be nice to take
out a loan for more than you need.
You could probably use the extra money.
Aside from the obvious advantage of
this, there are also disadvantages.
In a an article published by 1st-mortgages.com,
entitled, “HELOC Home Equity Loans
Come Roaring Back,” author Andrew
Kellerman explains why these loans have
struggled in the past to gain popularity.
“A home equity loan is secured
by more than your home is worth sounds
like an oxymoron, doesn't it?”
Since it is secured by more than the
value of your home, you should be able
to increase its financial dexterity
even more.
“The ‘125% home equity loan’
or sometimes referred to as the ‘125%
NO EQUITY loan,’ allow the homeowner
to borrow up to 25% more than his/her/their
home is worth. There are lots of caveats
and these change dramatically from state
to state. A few are: maximum loan $125,000;
no more than $50,000 cash; must use
some of the loan to improve your home.
Although these are 2nd
mortgages they can be used as a
1st.”
The obvious benefit of this 125 percent
loan is the extra money you will have.
Another benefit is that the interest
may be tax deductible. This does not
always come true though, especially
if the equity borrowed exceeds the purchase
price.
“One major problem occurs when
you need to or have to sell your home.
Unless the value of your home has risen
significantly (25% minimum) you may
have to actually pay to a buyer to purchase
your home. Another question to ponder
before tackling
one of these mortgages is what happens
if you lose your home through foreclosure.
The IRS calls it debt relief.”
In the past, even if you had knowledge
about the negatives of the 125 percent
home equity loan and wanted to apply
for one. Finding one was difficult.
Lenders stopped offering them because
clients (borrowers) didn’t want
them.
“When there is a larger than expected
default rate, one of two things happen.
The package buyers change their pricing
or if there are major problems they
drop their purchases all together.”
Wall Street portfolio managers did not
try to revive these “NO EQUITY”
loans because they had little success
and little history.
But now there is good news for those
who have read about the 125 percent
home equity loans and are intrigued.
“The 125% home equity loans have
been re-designed, re-priced and re-instituted.
‘Back by popular demand,’
is what actually happened. When there
is such a voracious market for a product
someone will take the chance. There's
a lot of money to be made, Wall Street
will find a way.”
Remember, there are still significant
risks involved with this loan, but it
is nice to know that the option to borrow
an extra 25 percent is available. |
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