125% Mortgages: Your Home Loan Solution

Tim Worstall
LoanBiz Columnist

Article Rating , 4 out of 5 based on 1 votes

A 125% mortgage is more than the value of the house, yes, but it can be a solution to your home loan concerns. It might seem a little odd that mortgage companies would actually offer 125% mortgages. After all, they are relying on the value of the home itself as the security for their loan. Why would mortgage companies do such a thing, placing themselves at risk? The answer comes from the fact that a home is rather more than just the building itself, as both you and the mortgage companies know. A 125% mortgage covers the gap between what is simply a house and what makes it a home.

Why would you want a 125% mortgage as a home loan?

Think about it for a moment. Over and above the costs of the building itself, there are costs of furnishing it and decorating it to your standards (especially if it is a fixer upper). Then there are the closing costs and the price of actually moving into it. No house is ever exactly as you would like it, so there are extra costs involved in turning it into your home. The mortgage companies know this just as much as you do and thus the 125% mortgage. While you are borrowing more than the value of the house, and also paying a slightly higher interest rate, it can be worth it to be able to do all the extra things that turn it into your home.

After all, what you want is a home loan, not just a loan.

About the Author
Tim Worstall has a degree in finance and accountancy and writes extensively on matters economic and financial.

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