Many lenders limit the amount of money that you can draw from your home to 80 percent of the home’s value, or at most 100 percent of the home’s value. Some lenders, however, offer 125 percent home equity loans.
What are 125 Percent Home Equity Loans?
To understand how a 125 percent home equity loan works, you must first understand the LTV ratio. LTV stands for loan to value and represents the number that comes from dividing your loan amount by the appraised value. For example, if you have an $80,000 mortgage on a $100,000 home, your LTV is 80 percent.
If you were to get a 125 percent home equity loan on this home, you would be allowed to borrow $45,000 on top of the $80,000 you already owe. Basically, your lender would be giving you more than your home is worth. The problem with this is that if you ever need to sell or move for any reason, there will be not be a way to recoup enough to pay off your debts.
Who Should Get 125 Percent Home Equity Loans
A 125 percent New Jersey home equity loan isn’t right for everyone. Homeowners can get themselves into dangerous territory when borrowing that much money. Rates on New Jersey home equity loans average 7.64 percent. If you get a 125 percent New Jersey home equity loan, you can expect to pay interest rates that are anywhere between 12 and 18 percent. This means high payments, which aren’t easily affordable. Before getting a 125 percent home equity loan, you should be very confident in your ability to pay back the money you borrow. You also better be sure that you really need the cash.