Question:

Are there 125% home equity loans?

Answer:

Yes, there are. Most lenders will provide up to 100% home equity loans, but there are some who would extend to 125% home equity loans or line of credit. The basic requirement is that you have good credit.

A 125% home equity loan or line of credit for a house worth $300,000 and a first mortgage balance of $200,000 means that you can borrow up to $175,000 minus any loan fees. Those 125% home equity loans are also used to consolidate debt, rehabilitate homes and pack for a vacation.

Watch Out with 125% Home Equity Loans

Given that over equity loans are relatively easy to obtain, people tend to open credit they don't necessarily need. Even if they really need credit to consolidate debt, they usually continue overspending. What will happen if the borrower needs to relocate for a new job? Or if they lose their job and can't sell the house for 125% of its value, they will have to foreclose.

Also, there are tax-deduction limitations on 125% home equity loans. The IRS are watching those for borrowers trying to write off too much interest.

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