| A 125% home equity loan (also known as no equity | | | | buying furniture, landscaping, consolidation of auto loans, |
| loans, 125 home equity loans and 125 loans) is a | | | | personal loans and other high-interest loans, paying |
| second mortgage that requires no equity but the loan | | | | medical expenses and college tuition. 125 loans may |
| allows you to borrow up to 125% more than the | | | | also be used for mortgage refinancing of a current |
| current combined loan to value (CLTV) ratio of your | | | | second mortgage. |
| home. The CLTV is the proportion of more than one | | | | Even with rising interest rates, a 125% loan offers |
| loan secured by your home in relation to its value. This | | | | borrowers lower rates than credit cards and personal |
| is different than loan to value (LTV), which only | | | | loans, and it may also provide substantial tax benefits. |
| involves the proportion of a single loan in relation to its | | | | When used wisely, 125 home equity loans can be a |
| value. | | | | relatively low-cost way to borrow money for big |
| Wikipedia provides these examples to help people | | | | expenses and debt consolidation. |
| understand the difference between LTV and CLTV: | | | | 125% home equity loans are for those who plan to |
| Loan To Value: | | | | stay in their home until their property value increases |
| Property valued at $200,000.00 | | | | significantly because the home cannot be sold unless |
| 1st mortgage = $180,000.00 | | | | the home equity loan is paid off in addition to the first |
| LTV = 90% | | | | mortgage. Also, because lenders face a higher risk of |
| Combined Loan To Value: | | | | default due to there being no equity in the home, the |
| Property valued at $200,000.00 | | | | interest rates are higher than those of a conventional |
| 1st mortgage = $180,000.00 | | | | home equity loan. |
| 2nd mortgage = $45,000.00 | | | | 125% home equity loans typically require that the |
| $225,000 Total mortgage balance | | | | borrower has good credit. However, even if your |
| CLTV = 112.5% | | | | credit is less than perfect, you may still be able to |
| 125% loans are generally fixed interest rate installment | | | | qualify for a 125% home equity loan. If not, you may |
| loans, and they are particularly popular among first time | | | | want to consider mortgage refinancing or a standard |
| home buyers who don't yet have equity in their homes | | | | second mortgage loan once your FICO credit scores |
| for debt consolidation, making home improvements, | | | | improve. |