The Pros and Cons of a 125% Mortgage

Gil Mackey
LoanBiz Columnist

Article Rating , 4 out of 5 based on 1 votes

Whether you're interested in refinancing because you want to pay off credit card debts, fix up your home, or buy a new car, what do you do if you want to borrow more than the value of your home?

Mortgage Refinancing Options

There are many refinancing choices today, and sometimes the choices can get confusing. First take a look at your needs and find a home loan that fits. If you need to borrow more than your home is worth then the 125% mortgage is the logical place to start.

The Upside to the 125% Mortgage

If you're struggling with high-interest credit cards a 125% mortgage, usually offered as a second mortgage, will let you consolidate that debt. You can pay off those credit cards with a loan at a lower interest rate, and you have fewer bills to pay. Additionally, the interest on your mortgage refinancing might be tax-deductible--a benefit you won't get with credit cards. If your debt-to-income ratio is good, and if you make more than you owe by a good margin, then you might also consider the 125% mortgage as a good way to finance home improvements or other major expenditures.

The Downside to the 125% Mortgage

There are two primary downsides to 125% mortgage refinancing. The first is that you will owe more than your home is worth, as the name implies. If you plan to sell your home in the near future you may want to think twice -- you can't always count on appreciation. The second downside is the fees you'll pay on this home loan. Loaning more than the home is worth is a big risk for a mortgage company, and they may pass that along to you in the form of a higher interest rate, fees, or closing costs.

About the Author
Gil Mackey has been a writer and artist for the past twenty years. In addition to freelance writing, he writes for his local paper, and lives with his two children in Nevada.

Email this article

Please fill in a valid name.
Please fill in a valid e-mail.
Please fill in a recipient name.
Please fill in a valid recipient e-mail.
Email loading...