125 Secured Loans as an Option for Homeowners
Lenders have started to offer only recently 125 secured loans to homeowners who want to get a second mortgage. These loans offer a new option for obtaining a second mortgage for houses. This is a type of home equity loan that permits the borrower to get a loan amount that is equivalent to 125 percent of the appraised value of his property. Compare this to the home equity loan that only offers an amount that is 0.75 to 0.80 times that of the appraised price. The borrower must realize, however, that any outstanding balance on the previous loan will have to be subtracted.
The benefits provided by 125 secured loans are indeed surprising because what this means is that the 25 percent extra loan amount is not secured. What this means is that the extra 25 percent is risky for the lender. To try to make up for the additional risk, the lender will ask for a higher interest for the loan value. The borrower would be wise to consult some experts on the matter before proceeding with the loan because there are also other disadvantages that will be seen later.
The lender will often examine the credit score of the homeowner to find out if he is qualified for the 125 secured loan. The lender usually sets a threshold value for the credit score in the attempt to minimize his risk exposure. He will also look into how long the homeowner has been living in that particular home to be able to estimate the appraised value. It is usually a requisite that the owner has lived in that house for at least three months.
In the case where duration of the owner’s stay in the house exceeds one year, the lender will examine the tax assessments to come up with the appraised value. If the owner has been staying in that home for about one year, the lender will use the purchase price as basis for calculating the loan amount. Sometimes an Automated Value Model or AVM is provided by a computer that bases its calculations on the prices of similar houses within that particular neighborhood where the home in question is located.
What are the other downsides of 125 secured loans aside from more interest charges? It would be hard to sell the property because the extra 25 percent amount that is not secured by the home would have to be paid. Aside from that, he would not be allowed to consider the interest that he pays for the 25 percent extra amount as expenses when preparing his income tax returns. For more real estate funding alternatives click here.
