Archive for June, 2009

Lenders are making the market for new loans sound so good. Other types of loans are
already on the market, and understood. So, how do you get new people to jump on your
bandwagon? You offer something that sounds good, but one that not everybody yet
understands. That seems to be the case of the 125% home equity loan, too.

The Promise

The promise that is made is to give you 125% of the value of your house for a second
mortgage. This way you can enjoy having extra finances to use as you please. You can pay
off other debt, fix up the house, combine both mortgages, go on a vacation, or whatever.
The choice is up to you.

What, though, is the truth behind a 125% mortgage? Here are some details. Some of these
companies actually want to lend you more money than your house is actually worth. Think
about it. Are they really trying to help? With other lenders, it can actually be a little
difficult to get 80% of the value of a house (they are the smart ones). Why are these
agencies trying to push extra money in your face?

Extra Charges

A number of these companies charge 10% if you want to get a lower rate of interest than
what is initially offered. That’s just for starters. While they do offer lower rates than
what credit cards usually go for, it actually may not be much more, since second mortgages
are typically more than a first mortgage. Plus, there is an origination fee, closing
costs, and more.

Stay Where You Are

With the extra charges, and owing considerably more than your house is worth, you can plan
on not moving anytime soon. This puts you in a negative equity situation. Many people who
bought houses even last year are finding out that this is not a good situation to be in.
It is possible, in a day of unstable housing markets, that your house could also be
devalued