Saturday, March 14, 2009 

125% Home Equity Loan Solutions for Refinancing Compounding Interest

Debts can mount up out of control quickly, to the point that you may even be considering bankruptcy. With the new bankruptcy laws making the filing of bankruptcy so much more complicated and expensive, you may be wondering what your options are. For those with good credit and stable income, consolidating revolving debt with 125% home equity loans, also known as 125 percent loans or simply 125 loans, can make sound financial sense. Rather than let your credit card debt spin out of control, consider refinancing that compounding interest into a 125% home equity loan.

125% loans are typically fixed rate equity loans, which save you money over variable rate loans over the long term. The rates are also typically quite a bit less than those of credit cards, especially if you are paying universal default rates. Universal default rates are provisions typically buried deep within the fine print of your credit card agreement where you can get charged exorbitant rates if you are more than 30 days late on any ONE payment to any credit card. These rates can also apply if you go over the credit limit on any ONE card. Consumer Affairs found default rates as high as 35% (Merrick Bank) and many others running close to 30%.

125% loans are second mortgage loans that allow you to borrow more than what your home is worth. E-Loan gives this example of how it works: if your home is worth $100,000 and your first mortgage is $95,000, you can borrow $30,000, for a total of $125,000. Thus, there is no equity needed to get a 125% loan. If you are planning to stay in your home for three years or more, the 125% second mortgage loan is a great way to refinance high rate credit cards, lower monthly payments and save money.

While it generally requires good credit to get a 125% equity loan, there are also loans available for those with bruised credit. With 125% loans, there generally are no lender fees or appraisal required. The purchase price of your house minus all mortgages and liens is generally used to determine how much equity you have. And, because lenders know how busy people are, they generally send a mobile notary to you to sign the loan papers. How convenient is that?

Rather than going through the expense and hassle of bankruptcy, why not pay off all of your credit cards, consumer loans, and other bills and combine those outstanding balances into one low monthly payment called a home equity loan? It will help raise your credit scores, too, because your debt ratio will be lowered significantly. As long as you do not re-incur the debts by using the cards, you will save money and enjoy the piece of mind of lowered interest rates and lower monthly payments.

Maria Ny is a highly respected free-lance writer from San Diego, California. She has published many articles online that covered a broad range of subjects ranging from Home Equity, Debt Consolidation, Bankruptcy Reform, Credit Repair to Real Estate Financing. Check out her insightful articles online at Second Mortgage Loans Nationwide. You can learn more about home equity loans, credit lines and second mortgage financing for first time homebuyers online. Get a free loan quote for a 125 Home Equity Loans that requires no equity. We recommend that you get more details about the guidelines for Home Equity Loans because you can save money and lower your monthly payments by refinancing the revolving credit cards.

 

Pros and Cons of a Home Equity Loan

You might be thinking of taking a home equity loan to do some home improvements or consolidate debt. Many of these equity loans come in the form of a home equity line of credit (HELOC). While often a great option for you, here are some things to ponder while deciding:

Pros

1. Take the Money As Needed

HELOCs provide you with financial flexibility and time to make smart decisions. For example, if used for long term home improvement projects, you can take the money in installments only when you need to buy more materials or pay construction costs. This is a nice alternative to lump-sum second mortgages where you take the money all at once and have to begin repaying on the total immediately.

2. Consolidate High Interest Debt

These equity loans give you the chance to consolidate much higher interest credit card debt into a lower monthly payment. This can provide you with some financial relief. When you pay enough of the equity line off, you can always take out more to tackle other needs.

Cons

1. Your House Is At Risk

Like any other lien against your property, failure to make payments can cause your home to go into foreclosure. Before consolidating debt or taking on home improvements, you will want to carefully consider whether this is a risk worth taking.

2. HELOCs Have High Variable Rates

Since secondary liens are riskier to lenders, they will charge you higher rates than on conforming first mortgages to compensate for that threat. Also, these rates are frequently adjustable rates tied to the prime rate. This can be dangerous for you, especially if you are consolidating debt and still using the cards.

These ideas should help you decide if this is the right choice for you.

Recommended Home Equity Lenders Online - We maintain a list of recommended mortgage companies online and update the list regularly.

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