The high competitive loan market has created 125% home equity loans to provide inexpensive funding to those who have already reached the 100% limit of their property value. With this exceeding amount you'll be able to obtain the money you need for any purpose with lower interest rates and more advantageous terms than with unsecured loans.
It is not easy however to understand how an inexistent amount of equity can secure a loan. Given that a property has a limited value, the amount of money borrowed that exceeds this amount might seem unsecured. However, it is actually secured with the same property only that there is a higher risk for that exceeding amount.
Property Value And Equity
A real estate property is an asset in whole, the market value is unique and with some exceptions, it cannot be divided. Thus, legally speaking what secures a certain amount is an ideal or virtual part of the asset. This implies that with home equity loans that exceed the market price of the asset, the risk for the lender of loosing money is greater.
When you obtain a 125% home equity loan, the mortgage loan is fully protected. The remaining equity guarantees the home equity loan. For a 0,000 property with a ,000 mortgage balance, you can obtain up to ,000 with 125% home equity loans, but the property can only guarantee up to ,000.
It's Just A Matter of Risk
The lender counts on the fact that properties tend to increase their value and that as soon as the mortgage and home equity loan's balances are reduced enough, the property will be able to guarantee the whole remaining balances and no exceeding amount will linger unprotected by the collateral. Thus, the lender is only risking a smaller amount for a short period of time.
Nevertheless, the greater risk exists and thus, the lender will compensate that fact with higher interest rates and shorter repayment programs so as to obtain higher monthly payments and reduce the debt faster. Also, in order to get approved for these loans, you'll need to meet harsher credit and income requirements.
How And Where To Get Them
Though these loans are becoming increasingly popular, you just can't find them anywhere and only specialized lenders are offering them widely. However, it is possible to find different lenders and compare what they have to offer by searching the internet for 125% home equity loans. Once you've entered your search in your favorite search engine, you'll be presented with many results.
Make sure to check everything thoroughly and contact the lenders informally prior to applying. Remember that given the higher risk that these loans represent you might be asked to meet harsher credit requirements than with regular home equity loans. And thus, you need to make sure you qualify before applying so as to avoid declines that might affect your credit negatively making it even more difficult to obtain financing in the near future. By requesting loan quotes you might be authorizing the lender to run credit checks, so be extra careful and ask the lender before applying.