A 125% Second Mortgage is a 2nd mortgage in which the face amount of the loan exceeds the value of the property by 25%. A Property valued at $200,000 would have a loan for $250,000. This is a perfect type mortgage for individuals with little or no equity in their home. The loan offers 125% of value minus the first mortgage.
This loan could be used for debt consolidation or to combine first and second mortgages where the fixed mortgage rates or the adjustable rate mortgages or a combination of the two produce a higher monthly cost then the new fixed rate on the 125% second mortgage.
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The new mortgage payments will yield lower monthly payments and therefore save money that may be used on higher interest monthly payments. The extra funds could be used for bill consolidation, home equity loans and revolving credit lines with adjustable rates of interest when interest rates are on the rise.
Another reason to acquire a 125% second mortgage is to save money by paying off high interest credit card debt. 125% second mortgages usually are simple interest fixed rate mortgages. While credit card rates may be as high as 21% and can be adjusted up in the future, the typical fixed rate today is between 6% and 7%. Another advantage of the fixed rate mortgage is that the payments are always the same which makes monthly budgeting easier.
How can my credit card score affect my securing a loan and the interest rate on the loan? The interest rates on loans that exceed the maximum value of the property are based on your credit score. The ability to refinance high interest mortgages with a low fixed rate 125% second mortgage will depend on a high credit card score. A score of over 750 will be needed to get approval for a 125% mortgage. A good credit rating is necessary since the lender is providing more cash then there is equity in the property. A score of over 800 will get the borrower a favorable rate. Individuals with credit scores of 620 or less will have a hard time finding lenders for maximum mortgages. If a lender is found, the interest rate may exceed 9%.
Should first time homebuyers consider a maximum mortgage or choose a conventional fixed rate mortgage with 20% down? First time home buyers should only consider a fixed interest mortgage. If things go well and interest rates stay the same or drop the borrower can always consider mortgage refinancing to a more sophisticate type of mortgage.
Mary is published web author for many mortgage and real estate articles. She writes articles for people all across the country in an effort to increase their awareness for home finances.
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ReplyDeleteWe offer the following types of loans
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