Breaking Down the 125% 2nd Mortgage


After taking on the responsibility of taking out a mortgage and paying it dutifully for a long time, don't you think it's time to make use of your options in borrowing against that loan? There might be some business ventures out there that might speed up your debt payment and set you up for life. Or you might be thinking of moving into a new, bigger house. Bad credit? High interests on large credit card debts? Look around

One of your options is a 125% 2nd mortgage. This is basically a second loan which, when added to the value of the first mortgage, will amount to 125% of the value of your home. Take the 125% of the value of your home, subtract against it the value of your first mortgage and you arrive at the approximated ceiling of your 125% 2nd mortgage.

Availing of a 125% 2nd mortgage can give you lower rates than the more common types of mortgages, without compromising the important tax cuts. It allows you to relegate that money to other concerns, such as acquiring another property, paying up debts or investing in stocks or putting up a business. Normally involving large amounts of money, it is a large loan that runs through 15-30 years. 125% 2nd mortgages also have lower monthly payments, since it is a 2nd mortgage.

But not everything about this deal is an upside. 125% 2nd mortgage companies charge fees to give out loans, and they offer reduced rates, yes, but they charge as much as a 10% premium on the amount to be borrowed. That's 5,000 for a 50,000 loan. In the end of the deal, you'll probably owe more than your house is worth.

Taking out a 125% 2nd mortgage also requires that you do not sell your home or refinance the mortgage. Because you can't owe more than the house costs for a minimum of two years at the most modest of interest calculations.

Therefore, while attractive, don't jump onto the 125% 2nd mortgage van that easily. There are things you should remember and think about before going for it.

Make sure that the 125% 2nd mortgage doesn't charge a large origination fee. Climbing out of a 10% premium for a large loan can be a dragging and cumbersome -- that's ten percent just going to the company and not to your finances. Also, make sure that you can speedily pay the 125% 2nd mortgage. Since it is spread out over a long period of time, the interest can really be financially draining. Make sure you can pay more than what they ask for each month. Another, make sure that you don't incur any other major debts after the 125% 2nd mortgage. This is already a big responsibility, notwithstanding the extra loans and expenditure that'll run you down even further.

Lastly, make sure that you're taking out a 125% 2nd mortgage for a good reason. Medical emergency not covered by your health insurance, your child's college education and wise investments are the kind you'd want.