A 125 home equity loan, like the name indicates, is a loan that is based on the equity in your home. However, traditional home equity loans are generally only for the actual amount of the equity that you have built up on your house. With a 125% home equity loan, you can receive 25% more than your equity.

The 125 home equity loan is basically a second mortgage. The borrower will still pay their regular mortgage and then have a second payment to make each month for the 125 loan. For example, if your house has an appraisal value of $100,000 and your first mortgage is for $90,000, you will be able to get a 125 loan amount of $35,000.

This type of loan can be very advantageous to homeowners who need a large sum of money, but do not have sufficient equity built up in their home to cover their cash needs. Homeowners may want to do some major home improvements, pay for their children’s college education, have unexpected medical or other emergencies come up, want to start a business, or have other situations where cash is needed. A 125 home equity loan also comes with several potential disadvantages as well.

One major advantage of 125 home equity loans is that homeowners can receive a loan not only for their equity but 25% extra as well. The interest rate on this type of loan will also be lower than credit cards or personal loans. Interest may be tax deductible, whereas the interest on personal loans is not.

125 home equity loans also have some disadvantages. One of the major disadvantages is high closing costs. The closing costs on a 125 home equity loan could wind up costing a homeowner several thousand dollars and other fees may be added also.
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High interest rates are another drawback to 125 home equity loans. The interest rate on this type of loan is higher than for a regular home equity loan or first mortgage. However, the interest rate will most likely be lower than the rate for a personal loan or a credit card.

Another potential disadvantage for 125 home equity loans is putting the homeowner is a tough situation when it comes time to sell the home. If values on houses depreciate and the homeowner needs to sell, they will have to pay the lender back on the 125 home equity loans. They already received 25% excess on the equity, and if the value on their house falls they will have even more of a shortfall to make up.

As you can see there are several advantages as well as disadvantages to a 125 home equity loan. Before making a final decision on one, you will need to weigh the pros and cons. You may also want to speak with a financial adviser to see if this is the best option for you.

Tab writes on various subjects of interest to him, with the main objective of educating people on 125 home loans as well as home loans in general.