What You Should Know About the 125% Home Equity Loan

The 125% Home Equity Loan is a type of loan in which the lender gives more than the home value. The borrower has access to 25% more than the appraised home value. This type of loan can be very attractive because the extra amount of cash available, but is not without potential risks.

In times of financial setbacks or unforeseen expenses, this loan may be more beneficial.

Things to Know About the 125% Home Equity Loan

The 125% LTV Home Equity Loans typically have much higher interest rates. Closing costs are often as much as 10% of the loan. Furthermore, the loan payment can also be quite lofty. 

There is no tax deduction that can be taken on a 125% home equity loan if it exceeds the fair market value of the home.

The homeowner may be at risk if he plans to sell the house because he has borrowed more than the house is actually worth. The home's value can also decrease at any time. Unless the home is sold for more than 125% of its value, the homeowner may be required to repay the extra debt first.

Obtaining a 125% home equity loan can be more difficult.  The borrower should be well versed on his credit rating and loan terms.