Archive for May, 2009

125 percent mortgage loans are first and second mortgages or equity lines of credit
offered to homeowners in the hopes that good property appreciation will continue to last.
These mortgage loans are equivalent to 125 percent of the property’s market value. It is
however, important that you have a great credit record so that your lenders are inclined
to do business with you. Dealing with people with sound credit history reduces the
lenders risk considerably.

When you apply for a home equity line of credit, better known as HELOC, your bank will
decide a particular credit limit, to determine the maximum amount they can give you over
the period of your loan. Once the loan is approved, you get a plastic card or paper checks
or both, to withdraw cash against your line of credit. As the amount of money withdrawn
goes up, your HELOC is reduced. Similarly, as you make payments on the principal amount,
you can again borrow more money from your HELOC. For instance, assume that your bank
approves you for a $10,000 home equity line of credit. If you withdraw $2000 then the
amount owed on the home equity loan is$2000 with a balance of $8000 remaining on your home
equity.

Although 125 percent HELOC mortgage loans give you the much-needed cash flow to take care
of sudden expenses, you need to weigh the pros and cons carefully. Homeowners were
initially attracted to this type of mortgage, mainly because they got much more than the
actual cost of the property. Traditionally, the loan amount is eighty percent of the
property value. However, the 125 percent loan got them in trouble when the market was not
as promising as before and the interest rates skyrocketed. Higher interest rates resulted
in unaffordable payments, forcing many to sell off their properties to take care of their
financial liabilities.

15 Things You Should Know About HELOCs (Home Equity Lines of Credit) – A complete list of
the basics of HELOCs and more.

Recommended HELOC Lenders Online – We maintain a list of recommended lenders online and
update the list regularly.

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