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125 home loan


125 home loans are those loans which allow you to borrow an amount 125 % of the price of the property. The loan will consist of 90 -95 percent of the actual property value and the rest will be an unsecured loan.This portion of the loan that is unsecured, though will have the same rate of interest as that of the other portion, it may carry a higher lending fee as it is not regulated by the government.


The main advantage with the 125 home loans is that it avoids the need of taking a separate unsecured loan from another lender at a higher rate of annual interest. It may be noted that certain lenders dont charge mortgage indemnity premium due to the very nature of the 125% home loan.


For whom are the 125% home loans?




125% home loans can be availed by first time home buyers, next time buyers or those who want to release the equity in their home by second mortgage without changing their house. The 125% home loans suits those people the best who are sure not to move for at least 10-12 years. Those who are likely to move inside 3 -4 years, the repayment of 125 % home loans may cost dear.


Advantages and disadvantages of 125 % home loans


At first sight, 125 % home loans appear attractive for one and all as a way to make your home purchase most profitable, which is more or less justified as well. You will have extra money with you which you may use to either clear off any existing debts.


On a closer and deeper look, though, one could see some potential dangers associated with taking a 125 % home loan. The most glaring of those is the possibility that you will have to stay put in your home for longer than you had expected to. Since a major portion of your payments will be towards paying off the interest than the principal amount, the equity comes at a slower rate than you would like it to be.Also, the general feeling that the interest on the home loans is deductible is only partially right, as according to IRS rules, the home loan interest up to the 100% value of home is deductible, which means the deduction doesnt apply to the remaining 25% of the loan.Also, even though loans on the credit cards carry a higher interest rate on them, the fact that you pay them off quicker leaves you having to pay much less on interest than the 125 home loans.


It also gets tough to sell the property as you will have to clear the payments and also pay commission charges of the order of 6% to your real estate agent to finally make the sale which will dry out your funds.


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