The Pros and Cons of a 125% Mortgage
Gil MackeyLoanBiz Columnist
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.
