Finance > Loans > 125% Home Equity Loans – Are These Loans Beneficial or Risky?
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Article rating : 0.00, 0 votes. Author : Carrie Reeder
Home equity loans are beneficial for numerous reasons. If you own a
home, and need extra cash, obtaining a home equity loan will put cash in
your pocket. The money received can be used for any purpose. Because
home equity loans are dispersed as a lump sum, homeowners usually apply
for these loans to pay for a huge expense.
No-Equity Home Equity Loan Basics
For the most part, the amount received for a home equity loan is
according to your home’s equity. Lenders are reluctant to approve homeowner
for loans that exceed the equity value. However, you may find a lender
willing to offer a no-equity home loan. Also referred to as 125% home
equity loans, these loans are both secured and unsecured. Lenders that
offer these loans will grant you a home equity loan up to 25% more than
your home’s value.
Why Get a No-Equity Home Loan?
125% home equity loans were extremely popular in the 1990’s. In more
recent years, the amount of people applying for these loans has dwindled.
Those who apply for these sorts of loans generally require a large sum
of money, and do not have sufficient equity in their homes. However,
because of rising home values, few people are taking advantage of
no-equity home equity loans.
Dangers of No-Equity Home Equity Loans
While obtaining more than your home’s value may appear to be a solution
to extreme money woes, no equity home loans are very dangerous. Today,
the housing market is strong. Most cities throughout the country show a
22% increase in home values annually.
However, if the housing market was to slow down, and home values began
to fall, those who obtain a 125% home equity loan would likely be
unable to sell their homes. For example, if your first and 125% second
mortgage amounts to $200,000, and you can only sell your home for $150,000,
you are responsible for paying the lender the addition $50,000.
Furthermore, some homeowners are unable to afford the extra monthly
payment of a high second mortgage. If you default on a home equity loan
for three consecutive months, the lender may foreclose. While these loans
are ideal for paying off bills and debt consolidation, some homeowners
fail to close paid off accounts, which results in acquiring more credit
card debt after the accounts are paid.
Here are our recommended
Home Equity Loan Companies online.
Carrie Reeder is the owner of ABC Loan
Guide, an informational website about various types of loans.
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