A 125{9e6afc18e04fc5fa66224b06488e691531267e3d6804b0d35af7d6b75debefc2} home equity loan (also known as no equity loans, 125 home equity loans and 125 loans) is a second mortgage that requires no equity but the loan allows you to borrow up to 125{9e6afc18e04fc5fa66224b06488e691531267e3d6804b0d35af7d6b75debefc2} more than the current combined loan to value (CLTV) ratio of your home. The CLTV is the proportion of more than one loan secured by your home in relation to its value. This is different than loan to value (LTV), which only involves the proportion of a single loan in relation to its value.
Wikipedia provides these examples to help people understand the difference between LTV and CLTV:
Loan To Value:
Property valued at $200,000.00
1st mortgage = $180,000.00
LTV = 90{9e6afc18e04fc5fa66224b06488e691531267e3d6804b0d35af7d6b75debefc2}
Combined Loan To Value:
Property valued at $200,000.00
1st mortgage = $180,000.00
2nd mortgage = $45,000.00
$225,000 Total mortgage balance
CLTV = 112.5{9e6afc18e04fc5fa66224b06488e691531267e3d6804b0d35af7d6b75debefc2}
125{9e6afc18e04fc5fa66224b06488e691531267e3d6804b0d35af7d6b75debefc2} loans are generally fixed interest rate installment loans, and they are particularly popular among first time home buyers who don’t yet have equity in their homes for debt consolidation, making home improvements, buying furniture, landscaping, consolidation of auto loans, personal loans and other high-interest loans, paying medical expenses and college tuition. 125 loans may also be used for mortgage refinancing of a current second mortgage.
Even with rising interest rates, a 125{9e6afc18e04fc5fa66224b06488e691531267e3d6804b0d35af7d6b75debefc2} loan offers borrowers lower rates than credit cards and personal loans, and it may also provide substantial tax benefits. When used wisely, 125 home equity loans can be a relatively low-cost way to borrow money for big expenses and debt consolidation.
125{9e6afc18e04fc5fa66224b06488e691531267e3d6804b0d35af7d6b75debefc2} home equity loans are for those who plan to stay in their home until their property value increases significantly because the home cannot be sold unless the home equity loan is paid off in addition to the first mortgage. Also, because lenders face a higher risk of default due to there being no equity in the home, the interest rates are higher than those of a conventional home equity loan.
125{9e6afc18e04fc5fa66224b06488e691531267e3d6804b0d35af7d6b75debefc2} home equity loans typically require that the borrower has good credit. However, even if your credit is less than perfect, you may still be able to qualify for a 125{9e6afc18e04fc5fa66224b06488e691531267e3d6804b0d35af7d6b75debefc2} home equity loan. If not, you may want to consider mortgage refinancing or a standard second mortgage loan once your FICO credit scores improve.
