Should we use 125 percent financing to pay off credit card debt?
If the idea is to finance a home and at the same time re-finance credit card debt at a lower rate then one could make the argument — at least as far as it goes — that this is a marginal financial strategy.
However, a 125-percent mortgage (or any mortgage) does not limit the ability to acquire additional debt. If additional debt piles up, then what? Will foreclosure and bankruptcy loom?
And what if you need to move? Will the mortgage debt be greater than the value of the house? Will you be “upside down” on the mortgage?
A better choice, though probably not the answer borrowers want to hear, is this: stop borrowing. Reduce spending, reduce debt, and start budgeting.
Lenders, happily, rarely make 125 percent loans anymore, evidence of growing financial sanity.
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