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.

The most advantageous thing about a 125 home equity loan is providing homeowners with potentially large sums of cash that they need. A 125 home equity loan will have a lower interest rate than a credit card or personal loan would. Part of the interest on a 125 home equity loan will most likely be tax deductible, which is not the case with personal loans or credit cards.

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.

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.

One other drawback to a 125 home equity loan is that it can put the borrower at risk and make it difficult for them to sell their house. If home values depreciate it will be difficult to sell the house and move because the homeowner will still be responsible for paying the difference to the lender. Since the borrower already received more money than the house was worth in the first place, having the house depreciate in value will make it even harder to pay the loan back.

There are some nice advantages to 125 home equity loans but there are several potential disadvantages as well. So before you make your final decision regarding this type of loan, be sure to weigh all of these factors. It might be a good idea for you to review this will your financial adviser or accountant as well.

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