125% Mortgages: Your Home Loan Solution
Tim WorstallLoanBiz Columnist
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.
