125% Mortgages

You mean you haven't heard? You're still paying on those credit cards? There is an alternative to those heavy payments every month, and maybe some tax benefits as well! Let me explain..... Recently there have been some exciting new programs developed in the mortgage lending community, and one such program is the 125% Home Equity Loan. That's right, I said 125%. Impossible you say! Its true, and if you haven't taken advantage of this new home financing tool, you may be paying way more than you need to.

The 125% concept is simple...you receive a 2nd Trust Deed on your residential property, and you don't actually need any equity. Why would a lender do this? The answer is a belief that you would be more likely to pay on your home, versus a credit card, in times of financial stress or emergency. As a result of this belief, the interest rate on this type of debt is generally less than that of the rate you are paying on those credit cards.

The 125% home loan is not designed for everyone, however. You still have to qualify, and you need reasonably good credit. The better your credit rating, the more money you may be able to borrow, up to $65,000. These funds can be used for ANY purpose. Most have found that paying off their credit cards is the best purpose for the loan, as it can greatly reduce monthly payments.

Let me give you an example...Let's assume you own a home worth $150,000, and you owe $142,500 (95% of value). You also are paying $870 per month between installment and revolving debt with a total owed of $25,000. This assumes a car loan of $12,000, and credit card balances of $13,000. You should have a pretty good idea of how long it will take to pay off the car, but how long will it take to pay off the credit cards? Here is the solution...Take a $30,000 equity loan out on the house and pay off the car and the cards. The payment on the new mortgage will be approximately $346 per month over a 20 year amortization period with an interest rate of 12.75%. What a difference! Now you are paying $872 per month, and you go to $346 per month, a savings of $526 per month! It may be even better than this...consult your tax advisor as to the deductibility of the interest on your new loan. The new loan to value on your home is 115%. (see, you didn't even have to go to the full 125%). Here is a side by side comparison:

125% Home Equity Loans: up to 125% of the value of the property (minus first mortgage) with fixed rates and fixed monthly payments, and additional options for lower monthly payments or lower interest rates.

125% Home Equity Line of Credit: up to 125% of the value of the property (minus first mortgage) with variable rates and the ability to use and reuse the line of credit for the first ten years of the loan. Includes flexible monthly payment options and options for lower monthly payments or lower interest rates.

125% HEL and HELOC:

• Debt consolidation and cash out
• Up to 55% DTI OK
• No max property value
• Loans and Lines of Credit up to $125,000
• HEL or HELOC
• Section 32 loans OK
• No Second Loan Amount to First Lien Ratio
• Condo/PUD 125% CLTV to $125,000
• Competitive pricing
• No mortgage insurance required