125% HELOC Question

new home, construction, for sale-1646668.jpg
Existing 125 loan / New mortgage Posted by: Frustrated Apr 14 2003, 12:27 PM

We currently have a 125 Loan against our house but we would like to buy a new house. Is there anything we can do? The equity in the house is probably equal to about one half or two thirds of the 125 loan amount. A bank will only give us an unsecured loan for what is equal to a little less than one half of the remaining 125 loan amount. We’ve had the loan just shy of three years and have regretted the decision from day 1 – we just didn’t think of the implications of the loan – yes it helped us consolidate some stuff but the interest is unreal – only $40 of my $460 payment goes to actually payoff the loan.

Thank in advance for any advice you can offer!!!

J “Frustrated” 

Posted by: loanuniverse Apr 14 2003, 05:24 PM

Let me consider this for a second…. For what I have been able to gather from your post the following is a breakdown of your situation:

1- You have a mortgage on your primary residence with a high interest rate.
2- The outstanding balance of the loan is anywhere from 60% to 66% of the market value of the house, based on your statement: { The equity in the house is probably equal to about one half or two thirds of the 125 loan amount.}
3- You requested an unsecured loan from a Bank…. I am going to guess so that it could be used as a down payment.
4- You want to purchase a new home.

The path that you take depends on whether you want to keep your current house or not. If you are going to keep it, the first thing you might want to do is refinance the current mortgage. It does not matter if the mortgage is called a 125% HELOC or whatever. It is a mortgage and can be replaced with a new loan with a more favorable interest rate. At the time of refinancing take out as much money as you can without having to pay PMI and use that money as a down payment for your new house.

If you decide to sell your current house then you can use the equity as down payment. The offer to buy the house might have to be dependent on the succesful sale of your current home.

Please take into consideration that I am a commercial credit analyst and residential financing is not my strength. However, the above is pretty much common sense. Some things that I would like you to keep in mind are:

a- Do not borrow unsecured if you can avoid it as interest rates on unsecured debt are usually higher.
b- Make sure to keep a good credit history as this is the most important factor on consumer debt.
Author: Commercial Loan Underwriter