The origin of the 125 percent home equity loan was the ever increasing demand for borrowing. As the name implies, this loan will grant the borrower the right to borrow up to 125 percent of his home's value. Let's say, for example, that one's home is worth $100,000 and his mortgages also total $100,000; the 125 percent loan, in this case, would allow him to borrow an additional $25,000. Before applying for one of these loans, there are four important things to keep in mind.

What is a 125 Home Equity Loan?

One of the primary reasons that people end up choosing this type of loan is because the process is easier than refinancing and has fewer attached fees. This type of loan will create a second mortgage on one's home, but it is a strategy that can be used for paying down high interest debt. The interest rate on this type of loan is usually much lower than the interest rate on credit cards.