Home Equity Loan Options Over 100 Percent

Sometimes lenders may allow homeowners to borrow more than the value of their home. Generally the next step up is 125 percent home equity loan products. This allows borrowers to access 25 percent more than their home's appraised value.

While a 125 percent home equity loan works similarly to a 100 percent home equity loan, there are a few considerations.

125 Percent Home Equity Loan Advantages

• You can use a 125 percent home equity loan to consolidate high interest rate credit cards or other loans.
• A 125 percent home equity loan offers the borrower another refinancing option.
• A 125 percent home equity loan offers the borrower more likelihood for cash out if the first mortgage balance is high.

125 Percent Home Equity Loan Risks

• Higher LTV ratios often mean higher interest rates for the borrower.
• Higher interest rates could translate into a hefty monthly house payment.
• IRS regulations won't allow a tax deduction on any part of a home equity loan that exceeds the home's fair market value (100 percent).
• If you plan to sell your house, you may have to come up with more money at closing because you have borrowed more than your home is worth. In other words, if you don't sell your home for more than 125 percent of its value, the equity you may have used for a down payment on a new home could be tapped out.
• Some lenders won't offer 125 percent home equity loans as a second mortgage.