Home equity loans are second mortgages and involve borrowing money against a home's equity. In most cases, homeowners obtain loans that correspond with their home's equity. However, it is possible to acquire a second mortgage for more than a home's worth.

What is the 125% Home Equity Loan?

The 125% home equity loan allows homeowners to receive a large sum of money to pay off consumer debts, make home improvements, or debt consolidation. These home equity loans are beneficial for individuals who need quick cash, but do not have sufficient equity in their homes. For the most part, obtaining a home equity loan is fast. On average, homeowners receive funds in as little as five days.

Benefits of Home Equity Loan

Many people choose home equity loans as opposed to refinancing because the process is simpler, and homeowners are not required to pay huge fees. Although home equity loans create a second mortgage, they are the best method for paying off high interest credit cards and other bills. The interest rate on a home equity loan is considerably lower than credit cards. Whereas it would take 10 to 15 years to completely pay a credit card balance, home equity loans are paid within five years. In the long run, home equity loans are the smarter move.

Risks Associated with Home Equity Loans

Aside from providing homeowners with fund to pay off credit cards and so forth, the 125% home equity loans poses certain risks. The interest rate on these loans is very high. This loan is a wise choice for those who can afford to make an additional monthly payment. On the other hand, individuals without extra money should think twice before placing their house on the line. The 125% home equity loan uses the home as collateral. If a homeowner defaults on the second mortgage, they could potentially lose their home. Another problem exists when homeowners use a home equity loan to pay the balance on credit cards, and then accumulate more debt. Homeowners interested in taking out a home equity loan should carefully weight the pros and cons, and compare lenders to find the best rate.

To view our list of recommended home equity loan companies, visit this page: Recommended Home Equity Lenders Online.

Carrie Reeder is the owner of ABC Loan Guide, an informational website about various types of loans.