What are 125% Second Mortgage Loans?

Most of us know what a home equity loan, or second mortgage, is, but what about a 125% second mortgage loan? These are unique home equity loans that allow you to borrow more than what your home is valued at through its equity. These loans are great for individuals who have lived in their home for a short period of time and have not been in it long enough to develop a large sum of equity.

These loans are often used for home improvements and renovations that cannot wait a few years. 125% second mortgages are simple to understand. Let's say for example that you home is worth $100,000 and your first mortgage was for $90,000. You can borrow $125,000 because your home is worth $100,000. That is 125% of your home's value. These loans are often called no-equity loans because the individual has not had the home long enough to develop enough equity to get a traditional home equity loan for the amount of money they require.

As with all loans it is important that you consider a few things before you take it out. You will first want to consider that most companies who loan second mortgages will charge you for borrowing the money. Some lenders will offer 12.25% interest but you have to add 10% of what you are borrowing to the loan amount, which means that you will pay interest twice on that amount. If you want a lower rate, then you will have to pay more of a percentage to borrow the money. Do some shopping around with lenders before you make your decision.

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