Definition of 125% Loan

125% Loan is a financial loan, usually a home loan, with a preliminary amount borrowed equivalent to 125% of the preliminary residence value. In other words, a 125% financial loan has a loan-to-value rate of 125%.

Brief Explanation of 125% Loan

A primary way of measuring a loan’s threat to a loan provider is the size of a financial loan comparative to the value of the actual residence. A 125% financial loan is a relatively dangerous financial loan as compared to a financial loan with a LTV rate of less than 100%, and therefore, according to the risk-based costs method used by creditors, a financial loan with a LTV rate of 125% will carry a greater interest rate than a financial loan with a LTV rate of 100%. The loan-to-value rate is a loaning threat evaluation rate that banking organizations and others creditors analyze before accepting a home loan. Typically, tests with high LTV percentages are usually seen as greater threat and, therefore, if the home loan is accepted, the financial loan usually costs the client more to gain access to.