A 125% Loan is a mortgage in which the loan amount is equal to 125% of the property's initial value, giving the loan a loan to value ratio of 125%. These loans are considered riskier than conventional loans, carrying higher interest rates than loans with loan to value rations of 100% or less.
For example, if the price of a home is valued at $100,000, the borrower can get up to 100 percent of the value of the home, which is $100,000 plus another $25,000, totaling $125,000. The additional funds can usually be used without restriction.
These types of loans were more common in the late 1990s, as lenders have restricted granting them following the economic collapse of 2008.
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