125% Loan

125% Loan

A mortgage loan for 125% of property value.

Since such loans are only partly secured, they have many of the characteristics of unsecured loans, including relatively high interest rates. Rates are largely determined by the borrower's credit score, however, and can be quite reasonable when the score is high. A drawback is that borrowers have difficulty refinancing 125% loans and can't sell their house without defaulting unless they can come up with the additional cash required to pay off the 125% loan.

References in periodicals archive ?
AssetWise applies credit evaluation standards for all borrowers and provides automated underwriting for all GMAC-RFC's non-conforming products including Jumbo, Expanded Criteria, Alternet (B/C) and Home Equity loans, credits lines, loans and 125% loan to value (LTV) products.
ARC Systems recognized the instability of the 125% loan market based on reports from our customers and our own industry experience," said Ed Jones, president & CEO of ARC Systems.
We have never got involved in the 125% loans that were available in the past.
This route has effectively been shut as a combination of falling house prices, the concentration of toxic 125% loans and the inevitable negative equity makes it difficult for borrowers to move banks, even if they wanted to.
But he acknowledged the Rock was "somewhat above" the industry repossession average due to its Together mortgage which offered up to 125% loans against the value of properties.