Although this site is mainly focused on 125% secured loans, there are precious little of those to be found these days, so I wanted to write a post in more general terms about getting a home owner secured loan.

What exactly is a home owner secured loan? Well, the name is pretty self-explanatory really. It is a loan taken out by a home owner, secured against the property itself. Although typically these loans are used for home improvements such as a new kitchen or bathroom, or building work such as an extension or conservatory, they can actually be used for any purpose. Because the lender knows that the risk of non-payment is low, it is not too difficult to get a loan secured against your property, as long as you have positive equity in that property.

There are many advantages to getting a secured loan over a non-secured loan. First of all, the amount you can borrow is generally much higher. So if you do need to make a big purchase and spend a lot of money (say for example you need $30,000 to build a new extension), you have a much better chance of gaining agreement from the lender to borrow that sum than you would have if you were not securing the loan against your home.

Secondly, you generally have a longer time period to pay the loan back. Again, the lender knows you are a home owner and that you probably have a mortgage, which may have many years still to run. Often (particularly if you are borrowing from your existing mortgage lender) the secured loan can be tied in to the term of the mortgage, so you pay the two amounts together, which makes it easier t plan your cash flow and monthly outgoings.

Also, compared with a non-secured loan, a secured loan is generally a lot cheaper, with lower interest rates.

Of course the one major disadvantage of the secured loan for home owners is that if you default on the payments, you are in danger of losing your home. In that way, the loan is no different to a mortgage, because if you default on your mortgage payments, you also may face the possibility of foreclosure or reposession.

Our advice would be to only take out a home owner secured loan if you really need it (for example for home improvements that are absolutely necessary, or that you know will add some serious value to your property) and if you know you can afford the monthly payments. Otherwise, don’t do it, save up instead!

What are 125% Secured Loans?

The term “125% secured loan” is actually something of a misnomer, because only part of the loan is actually secured. Typically, the secured part of the loan is for between 90% and 95% of the value of your property (with the property acting as the security) and the other 30% – 35% is unsecured. So a 125% secured loan is actually only a partially secured loan.

Lenders who offer 125 secured loans offer both the secured and the unsecured parts of the loan at the same interest rate, as long as those two parts of the loan continue to be linked.

In the UK, there are different regulations applied to secured and unsecured loans. So for regulatory purposes the two parts are treated separately. The unsecured 30% – 35% component of the loan would not be regulated by the FSA (Financial Services Authority).

Why would I want to take out a 125% secured loan?

Say for example you wanted to buy a property with a value of £100,000. But the property is in need of all sorts of improvements that will set you back another £25,000.

With a standard mortgage, you would typically only be able to borrow up to 95% of the value of the property (i.e. £95,000). But if you can find a lender willing to grant you a 125 secured loan, you have the possibility of borrowing the full £125,000. £95,000 of this amount would be secured against your property and the other £30,000 would be unsecured.

Being able to borrow 125% of the property’s value would allow you to undertake the necessary improvements and thereby increase the total value to your home. From the lender’s perspective, this is seen to be a good risk, compared with say if you wanted the additional money to buy a new car for example.

How much will it cost me?

Interest rates for 125 secured loans vary and are dependent upon a number of things. First of all, as we all know, interest rates go up and down with the economy. In the late 1980’s in the UK for example, mortgage interest rates were as high as 15%, whereas now you can get mortgages in the UK for around 4% to 5%.

Generally, 125% mortgage loans will be charged at a higher interest rate than standard mortgages, because of the unsecured component and the higher risk involved.

Different lenders will offer different packages. Some may charge a fee for taking out the loan, others may charge no fee but instead have a slightly higher interest rate.

The key thing is to shop around, do your research on the Internet and find the lender/loan combination that is right for you.

Who provides these loans?

125% secured loans are a lot harder to find now than they were a few years ago before the whole sub-prime fiasco led to a global credit crisis. So any list of lenders I give you here might be out of date by the time you read this. Also, it depends very much where you are. The US has a very different credit and borrowing landscape to the UK for example. So again, the best advice is to shop around and always go with a reputable, regulated lender.

What happens if I default on the payments?

As with any secured loan, if you don’t keep up the payments, your home and property will be at risk. A 125% secured loan is no different in this respect. If you fall behind with the payments, you might be given a couple of months’ grace period, but unless you can show that you will be able to catch up, the lender will instigate proceedings to foreclose on your property. So the best advice here is to keep up with your monthly payments and never borrow more than you can afford to safely pay back.

If you lose your job or other circumstances occur that drastically reduce your income, sometimes the best option is to sell your property sooner rather than later, while things are still under your control. This is always a better option than going through a repossession.

Can I get a 125% secured loan if I have bad credit?

The short answer here is yes, you can. But it will be a lot tougher finding a lender who wants to take you on, particularly in the wake of the sub-prime crisis.

A lot will depend on your credit history and your current credit score. If you can show that your credit score is moving in the right direction, you stand a much better chance of getting a loan.

How do I apply?

Generally, it’s a fairly simple process. Some lenders will allow you to go through the whole application process online, others will require a telephone interview and others will want you to meet a “financial advisor” in  person.

You will need to show a current valuation of the property, proof of earnings, details of your current monthly outgoing expenses, employment records and history, bank statements, etc.

Conclusion

125% secured loans can be very useful things, but they are not for everyone. Think very carefully before you apply. Do you really need to borrow 125% of the value of your home? If so, make sure you are comfortable with the monthly repayments.

Applying for a 125 Secured Loan is not really any different to applying for any other type of loan. The mortgage lender may have stricter criteria because they are taking a greater risk by lending you 25% more than the value of your home. But some lenders are prepared to do that, as long as you satisfy their requirements.

So how do you go about applying?

First of all, do some research online to draw up a list of lenders who offer 125 Secured Loans. You might want to draw up a table to compare interest rates and terms, then make a shortlist of lenders to approach.

Go to each lender’s website and take a look at what is involved in the application process. Some lenders will allow you to apply online, whereas others will want you to print off an application form, fill it in by hand and send it in.

In most cases, once you’ve completed the application form, the next step will be a telephone interview with a consultant from the loan company. In some cases, you may be asked to visit a branch and have a face-to-face interview, but that is unusual.

Once you’ve been through the interview process, the lender will probably do one of three things:

• offer you a 125 Secured Loan under the same deal for which you originally applied,
• offer you an alternative deal, for maybe a lower amount or at a higher interest rate
• turn your application down.

As long as you haven’t been turned down, the next step will be to go through the timescales and agree the processes for getting the loan completed.

Note that you may find it more difficult to find a lender willing to grant you a 125% Secured Loan if you are self-employed, or if you have any history of poor credit. For example, if you have defaulted on a previous loan or if you are in arrears on your current mortgage it is unlikely your application will be successful.

In terms of the amount you can borrow on a 125 secured loan, it will depend on the value of your property and on various other factors such as your current monthly income.

The time period of the loan can be anything from three years to thirty years.

There may also be restrictions regarding how you can use the money you borrow, so you want to make sure this is clear during the application process.

If all goes according to plan and you are seen by the mortgage lender as being a safe risk, you should be granted your 125 secured loan. Good luck!

We wanted to write a post about the dangers of 125% Secured Loans, because there are certainly downsides to these deals as well as upsides. And in the interests of balance, it is important that some of those downsides are pointed out to would-be borrowers.

The problem is of course that it tends to be people with poorer credit who generally apply for these types of loan rather than those with an excellent credit history. And over the last few years, when it comes to how they have dealt with sub-prime or non-prime borrowers, mortgage lenders haven’t exactly come up smelling of roses, have they?

The recent economic crisis was triggered by sub-prime debt being re-packaged and sold on to investors in the form of “structured investment vehicles” and “credit default swaps”. As a result of that, there have been more bank foreclosures on mortgages loans over the last few years than at any time since the Great Depression of the 1930’s.

Of course, we can’t lay all the blame for the recent economic decline of Western civilization on 125 Secured Loans! But some lenders can be quite predatory regarding these loans, even now in the wake of the sub-prime debacle.

So there are some key things you should consider as a borrower.

First of all, why do you want/need to borrow 125% of the current value of your property?

If it is to improve your home so that the value increases by more than 25% for example, then all well and good. You can borrow the money, make the improvements, sell your home and pay the money back hopefully with some cash left over as a deposit on your next property purchase.

If it is to pay for an expensive holiday or a new set of wheels though, then you should think long and hard about what you are doing. Yes, you will probably find a lender willing to grant you a 125 secured loan, but at what cost? First of all the interest rates are likely to be a lot higher than they would be on a mortgage of less than 100% of your property’s value. Secondly, what happens if the value of your property goes down? Or what happens if you lose your job?

And you also need to think about the tax implications. In the US, you can only obtain tax relief on a home equity loan or mortgage up to your home’s fair market value. Beyond that, there are no tax breaks. So if you think you can write of the interest payments on that extra 25% against taxes, watch out! The IRS might have you in its sights!

And even if you are borrowing for home improvements, not all home improvements will increase the value of your home by the amount of money you have borrowed to have them done. Particularly in a declining or stagnant market.

In conclusion, 125 secured loans can make a lot of sense and can free up needed capital. But there are downsides, so never take out this kind of loan without thinking long and hard and considering all the pros and cons.

The UK, like the rest of the Western world, has been going through some tough economic times recently. Because things have been particularly tough for the banks, if you are looking into 125 Secured Loans as a way to borrow more than the value of your property, it is actually a lot harder to find a mortgage lender willing to grant you a loan in excess of 100% than it was maybe three or four years ago.

But there are still deals out there to be had, if you know where to look. The financial situation is of course changing constantly, so by the time you read this post the information on this website may be out of date but at the time of writing, lenders like BM Solutions and Mortgage Express are offering 125% Secured Loans.

The great thing about these loans is the fact that, if you are mortgaged up to 100% of the value of your property and you need more cash, you do not have to go to another lender or take out another loan, at a higher interest rate.

In terms of who can actually take out such a loan, the lenders tend to look at each application individually. If you have good credit history, you will of course stand a better chance of being successful. And some lenders prefer to offer these loans to existing customers rather than new borrowers.

The way the 125% Secured Loan generally works is that anything up to 100% of the loan is secured against the current value of your property and the remainder is either secured against other goods and possessions or, more commonly, unsecured. So in this respect, the name “125 Secured Loan” is actually a bit of a misnomer, a more descriptive name would be “125 partially secured loan” or something similar.

Because of banking regulations in the UK, the secured and non-secured portions of the loan are regulated differently. However some lenders will link the two portions so that in effect, they are treated as one loan from the borrower’s perspective.

Of course, there are a couple of downsides of 125 secured loans. First of all, interest rates are generally higher than standard mortgages. This makes sense because the risk to the lender is higher. The other disadvantage is that as a borrower, you need to make sure you are in a position to keep up the monthly repayments, which can be touch if you’ve borrowed more than your property is worth, at a relatively high interest rate.

If you do have a poor credit history, don’t worry, all is not lost. Some lenders will still offer you 125 secured loans under certain conditions, so it is certainly worth making enquiries. Whatever you do, always make sure you do thorough research before entering into any kind of credit agreement and never borrow more than you can afford to pay back.

If you’ve arrived at this website, it is probably because you want to find out more about 125 Secured Loans. So let’s take a look in more detail at what exactly this type of loan is.

In essence, a 125 Secured Loan is one that allows you to borrow up to 125% of the current value of your property, with the property itself used as security. So it is inherently risky, as you are actually borrowing more than your home is worth.

For this reason, it is not an arrangement that you should enter into lightly. You should consider all the pros and cons before you apply for a loan like this, and be pretty sure that you will be able to repay it, otherwise you could lose not just your home but other possessions too.

Generally, 125 Secured Loans are not given out to new lenders or to those buying their home for the first time. These loans are more commonly granted to borrowers who have an existing mortgage and want to borrow additional cash, either for a substantial home improvement or for some other large cash purchase. They are most frequently granted for home improvements, for the simple reason that the home improvement will actually increase the value of the property.

Let’s look at an example.

Say for example your home currently has a market value of $200,000 and the amount you currently owe on your mortgage is also $200,000. In order to increase your property’s value, you want to fit a new electrical wiring system, new plumbing and a central heating system, at a total cost of $50,000. You believe, based on other properties in your street, that once all of that work has been done, your home will have increased its market value to $300,000.

On the basis of a plan such as this one, your mortgage lender may agree to loan you the additional $50,000, secured against your property. That is a 125 secured loan.

Of course, not all lenders will agree to lend you 125% of the current value of your home. You will need to show that the value of the property will increase with the work you are undertaking, to a level higher than the total amount you will owe.

But what about if you want to borrow the money for a new car for example? In that case, you will find far fewer lenders who are willing to take the risk. It is actually a lot more difficult to get a 125 secured loan for anything other than home improvements that will increase your property’s value. So that new car will probably have to wait.

There are many factors that the lender will take into consideration when looking at your application for the loan. The key thing from the lenders perspective is the risk factor. How likely is it you will repay the loan rather than defaulting? No mortgage lender wants their customers to default on their loans, it’s just not good business.

For this reason, lenders sometimes offer the alternative of a 125 partially secured loan. This is where the additional 25% you borrow is charged at a higher rate of interest than the original 100%. This counterbalances some of the risk on the part of the lender, because they are seeing a greater return on their investment.

In conclusion, the key thing to consider with 125 secured loans is the fact that you are taking a risk by borrowing such a large amount, so you want to make sure that you will be able to pay it back.