125 Mortgage
You may have heard about the new 125 mortgage also known as the 125% mortgage which not only loans you the entire worth of you house without a deposit or equity but also owns you an extra 25% so you can do something else like renovate the home or buy a car or go to school. So in other words you are lent 100% of the value of your home with an additional 25% upfront.
Although the 125 mortgage does seem ideal for first time buyers or buyers with not so perfect credit keep in mind that this is a much more expensive mortgage in the long term. It could take a first time buy more than five years to even break even when paying off that 125 mortgage. If you take out a 125 mortgage understand that you have no equity and that your house or property could be repossessed if you miss a single payment.
Yet another pitfall of taking out a 125 mortgage is that if house prices fall instead of rise you could end up endless paying off a home that is in a position of negative equity. There are lots of countries in the world that are allowing this negative equity situation that is brought on by the signing of a 125 mortgage. Coventry, Northern Rock and the Bank of Scotland offer the 125 mortgage in the United Kingdom.
Although the 125 mortgage can seem clear cut it actually isn't. It requires that you take a 95% secured loan on your home which means if you miss a payment the bank could get your house plus keep all of your payments. On top of this there is that additional 25% that makes up the 125 mortgage that is equivalent to 30% of the property price.
However to keep the 125 mortgage reasonable most banks have imposed limits on the unsecured loan so it does not get out of hand. Northern Rock will not lend more than 30,000 pounds as part of the 125 mortgage and the limit on a Coventry BS 125 mortgage is 25,000 pounds.
The logistical problem is an obvious one and that is your home may never be worth more than your mortgage. That means you couldn't borrow more against it. Yet another problem is job loss or illness that causes the need to remortgage your home. If you want to remortgage to a new lender and house prices have not increased you may not have enough value in your home to refinance it.
The biggest appeal of the 125 mortgage is that it does offer people who would not normally be able to buy and fix up a home the chance to do so. However this is still a risk for many people with bad credit or who may get ill or lose their job as repossession of the house is likely.
It can take you ages to own your home if you take out the 125 mortgage. This is definitely something to consider before you sign on the dotted line.
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