125% Home Equity Loan

Posted by  on Apr 16, 2009
A home equity loan is a loan secured by equity value in the borrower's home. Although this is generally a good idea, one major problem occurs when you need to or have to sell your home. Unless the value of your home has risen significantly, you may have to actually pay to a buyer to purchase your home. Another question to ponder before tackling one of these mortgages is what happens if you lose your home through foreclosure. The IRS calls it debt relief.

The reason a loan as popular as the 125% home equity loan disappear or at least become hard to find is because the firms that package and purchase these loans lost their buyers. These loans are put together in blocks and then sold to insurance companies and pension as parts of mutual funds or bond funds. When there is a larger than expected default rate, one of two things happen.

Sometimes, the package buyers change their pricing or if there are major problems, they drop their purchases all together. Heads roll on Wall Street and portfolio managers shy away from losses. The 125% home equity loan has been re-designed, re-priced and re-instituted. Back by popular demand is what actually happened. When there is such a voracious market for a product, someone will take the chance.

A 125% home equity loan is often referred to as the 125% no equity loan, which allows the homeowner to borrow up to 25% more than their home is worth. There are many caveats that change dramatically from state to state. Some examples include: maximum loan $125,000; no more than $50,000 cash; must use some of the loan to improve your home.

Many of the less obvious benefits are that the interest portion may be tax deductible. You are going to have to check with your tax advisors for this one, but the concern arises when the equity borrowed exceeds the purchase price.


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