125% Second Mortgage - A Few Things To Know
A 125% second mortgage is a home loan that allows you to borrow more from your home equity than what you actually have available. These loans are excellent if you have been in your home for a short period of time, but you need a second mortgage to help you make home improvements or pay for other expenses that you have acquired.
For example, say that your home is worth $100,000 and your first mortgage was for $90,000. You can borrow $125,000 because your home is worth $100,000 and $125,000 is 125% of your home’s value. These loans are often referred to as no equity mortgages because individuals who have not been in their home long enough to have gained enough equity in the home are able to take these loans out.
These loans often sound very appealing, but there are a few things that you need to know about these loans before you go take one out. The first thing to consider is that most companies who allow you to borrow a second mortgage will charge you to borrow money. For example, some companies will offer a 12.25% interest rate and to get the rate you have to add 10% of what you are borrowing to the loan. That means you are actually paying for a lower interest rate. If you want the rate lower, then you have to pay more.
Another important thing to remember is that if you take out a second mortgage you are stuck in your home until you get the mortgage paid off. You will also not usually be able to refinance the loan for a lower rate, even if your house has appreciated.
125% second mortgages work best if you don’t get hit with a large fee for borrowing the money in the first place. It is difficult to be in the positive when you are paying on an additional 10% of the money you borrowed. The second thing is to plan on paying off the second mortgage as quickly as possible. This means that you will want to make double payments if you can afford it. You will also need to have self-discipline. Be certain to make your payments on both mortgages and do your best not to use your credit cards. This is an easy way to get yourself in debt.