125% Home Equity Line of Credit

It can be incredibly difficult to come up with the money you need to pay for big ticket items such as a home renovation, cost of education or medical expenses if you don’t have a large savings account or a significant amount of cash or credit. A 125% home equity line of credit (HELOC) can help to solve similar dilemmas for many consumers, however.

A 125% home equity line of credit is very similar to a regular home equity loan or even a line of credit at a regular lending institution, except for one factor. With a 125% HELOC; the homeowner is able to access 125% of their home’s appraised market value, minus the outstanding balance of the loan. So, for example; if a homeowner has a $100,000 home to determine the total amount of credit they would be able to access they would multiply $100,000 by 1.25 which is equivalent to $125,000. If the homeowner still owed $50,000 on their home mortgage loan they would be able to access $75,000 ($125,000 - $50,000.)

This does not necessarily mean that the homeowner will automatically receive a home equity check from the bank for $75,000. A home equity line of credit works like a revolving credit line; similar to a credit card. If you have a credit card with a $2,000 limit then you are allowed to charge up to $2,000 on that credit card.

Every home equity line of credit is different and lending institutions have varying rules and regulations. It is quite common for closing costs to apply to a home equity loan as well as an application processing fee. Closing costs typically include the cost for having the home appraised as well as any legal and recording fees involved.

Individuals who are considering accessing a home equity line of credit should pay close attention to the home equity payment plan offered by the lending institution before they sign on the dotted line. Most banks offer different types of credit payment plans because they recognize that people are taking a line of credit for different reasons. Some credit payment plans offer borrowers the option to pay off the home equity loan very similar to any other standard type of loan with fixed payments at regular intervals. On the other hand, it is quite common to see home equity payment plans with a balloon payment. A balloon payment means that some, or all, or the principal amount of the home equity loan will still need to be paid at the end of the loan term. If the borrower is unable to make the balloon payment at the end of the term of the home equity loan this is the same as if they had defaulted at any other point during the loan.

A home equity line of credit can be very beneficial when you need to come up with a lot of cash for whatever reason. When used wisely and all the terms and fine print are read and fully understood, a home equity line of credit is an excellent solution for many consumers.