| Many borrowers think they have found the | | | | risking losing your home. |
| perfect loan - the 125. But you should be cautious | | | | When you take out a 125, you have to be |
| when considering this product. | | | | dedicated enough to cut up each credit card right |
| A 125 loan is named for the amount of equity | | | | then and there. This will help you avoid temptation. |
| you can pull out of your home, which is usually | | | | You may be saying, but wait -- I get to deduct |
| 125%. Some of the loan is secured by your home | | | | the interest on a 125 on my income taxes. Yes, |
| and some of it isn't, making it a mixed loan type. | | | | you are saving 28 cents for every dollar you |
| The portion that is unsecured causes your | | | | spend. Doesn't make a lot of sense. Plus, the |
| interest rate to be higher than with a fully | | | | amount of interest on the loan above the value |
| secured home equity loan. | | | | of your home is not tax deductible. If you deduct |
| Many borrowers turn to 125 loans because they | | | | it, it will bite you in the taxes. |
| can simply make one payment to their lender | | | | You are also now upside down in your home |
| instead of several payments to many lenders. | | | | equity. You owe more than your home is worth. |
| The single payment is often lower than the total | | | | You can't sell it until the value of the house |
| of all the payments it replace, due to differences | | | | increases or you pay off the loan enough to |
| in interest rates. The rates are often much better | | | | reduce the balance below the value of the house. |
| than credit card rates, but if you roll other loans | | | | That takes around five to 10 years in most |
| in, such as student loans, you may actually be | | | | cases. |
| raising some rates on your debt. | | | | If you are forced to sell your home, you will |
| For example, you may have a car loan with a | | | | probably have to pay money at closing just to |
| balance of $11,000. You have an interest rate of | | | | get it off your hands. You are paying to sell your |
| 8.5% and 4 years left of payments. You roll the | | | | home. If you plan to stay in your home for a long |
| note into your 125 loan, which has a rate of | | | | time, you may not need to worry about this as |
| 11.5%. You've actually raised your interest rate. | | | | much. |
| If you roll in a credit card with a $12,000 balance | | | | But keep in mind that the unexpected happens. |
| and an interest rate of 19%, you are lowering | | | | When you open yourself up to a lot of debt, you |
| your rate. But you will be looking at upwards of | | | | are putting your future at risk. Taking out a 125 |
| ten years of payments. | | | | loan to get rid of the debt isn't necessarily your |
| The real danger comes in when borrowers take | | | | best option. It certainly isn't the easy way out, as |
| out a 125, roll over their credit card debt and then | | | | you may have been told. It is the same debt, just |
| go out and max out those cards again. This is | | | | new place. Be very careful, it's your house on the |
| called reloading. You now have double the debt to | | | | line this time. |
| repay. You are in a worse situation now and are | | | | |