The Hidden Costs of a 125 LTV Home Equity Loan

Many times homeowners are seduced by the attractive sounding 125% loan to value home equity loan. These offer debt consolidation of an existing property loan and high interest credit cards or other debt. What is sometimes hidden in all the paperwork is extra costs that quickly accrue.

What are the Hidden Costs?

  • The 125 LTV Home Equity Loan typically have much higher interest rates and closing costs. Those closing costs are often as much as 10% of the loan.
  • At risk are the homeowners with lower income, high debt, and or poor credit who can be swayed into believing that 125% loan will lower their burden. Loans are often tiered based on the loan to value ratio, and the more debt carried can increase the rate. Some offer low introductory payments that escalate into very high rates and be more expensive in the long run.
  • There may be hidden fees, known as "packing" that do not show up until the final 125 LTV home equity loan contract. "Credit Insurance" or other hidden fees may be charged, so it's important to look over the fine print.

Knowing Market Value

What's even worse is that no tax deduction can be taken on a 125 LTV home equity loan that exceeds the fair market value of the home. In today's volatile market, the value of the home can quickly decrease at any given time. Borrowers can protect themselves by researching out all the options for home equity loans thoroughly.