Many mortgage lenders offer borrowers the option of borrowing up to 125% of the current value of their home. This means that you can borrow up to $125,000 when you home is valued at $100,000. The loans are often available for borrower's who are buying a home or for re-financing their current loan or as an additional 2nd. mortgage loan after their first mortgage. As example, if the home owner has a home worth $100,000 with an $75,000 current loan balance due on the first mortgage, he may be able to borrow up to $125,000 less the $75,000 balance due..leaving the homeowner with $50,000 to pay off other debt with higher interest rates, make improvements to the home, or use for other investments.
    
The terms of the 125% Mortgage Loans vary by lender but usually are issued for 15 year terms and have both fixed or adjustable interest rates. Most lenders insist that the borrower has good credit scores and reasonable length of credit history. A rule of thumb is credit scores of 660 as the minimum acceptable to apply for a 125% Mortgage Loan. Interest rates are consistent with second mortgage rates.
    
Home owners who have large amounts of credit card debt or installment debt that bear high interest rates are usually the best candidates for 125% Loans. This allows the home owner to borrow money at an interest rate that should be considerably lower than the credit card or installment loan rate and reduce his or her monthly payments. There may also be some income tax benefits since the interest you pay on your mortgage is tax deductible and the credit card interest is not. However, you may usually only claim a deduction on the interest on the home's current value, not the extra 25% the lender loaned you....so a $125,000 loan on a $100,000 home will have the benefit of a deduction of interest expense on $100,000, not $125,000. Please consult a Tax professional for details.
    
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