100% Home Equity Loan

A 100% home equity loan is a loan against the value of your house. Or rather against the the total value of equity you own in your house. During the recent credit boom, these loans were freely available to almost anybody with a pulse. No income necessary, the pulse was good enough. It didn’t even need to be a strong one.

100% home equity loans are also, not to put too fine a point on it – a thing of the past. That is not to say there may not come a time where the governments have printed enough money that they once again reappear, but I very much doubt it. The chances of you being able to refinance with poor credit are slim to none at the moment.

The simple fact of the matter is, there is no such thing and any companies offering such a loan are to be avoided. The only possible way I can see a loan of this type being offered is if it is offered against their valuation of your home. And you are going to discover that their valuation is somewhat lower than either yours or the current market valuation.

Most of the information on the internet is out of date regarding these loans. Even a so-called “respected,” financial institution – Wells Fargo - has misleading and out of date information on their website. They are apparently still offering 125 percent home equity loans, and have a list of the advantages of taking out a 125 percent home equity loan.

I refuse to leave a link to their site, but feel free to do a google search and see how they were pitching these loans that caused (at least in part) the current financial crisis. After a several hundred word sales pitch, they offer the warning that “Even though home equity loans can carry lower interest rates than unsecured credit, there is still some risk. Defaulting on any home loan, including a 100 percent home equity loan or 100 percent mortgage refinance, could mean losing your house.”

What they should have said was “Even though home equity loans carry ridiculously low interest rates for a short period of time, after which we will apply a crippling rate of interest that carries the risk of the entire banking system collapsing because we do not actually have this money we are lending you. Defaulting on any loan is quite OK for us because the government will bail us out in any event. Using your tax money. ”

Now that is a proper warning. It is pretty entertaining to see their “advice,” about borrowing against your home equity, given the current condition of the banks.

Because - let's face it, the banks have made a spectacular mess of things. Anyone needing to refinance with poor credit at the moment is in a world of hurt, to use a favorite expression, and things are not improving. Desppite massive injections of taxpayer money into the financial system, still banks are not lending - in fact 45 banks in the US have gone broke already this year - with more to follow.

Until such times as the credit markets are unfrozen, and refinancing rates for mortgages come down to a reasonable level we are all in trouble. Those lucky few with cash to spare will be reaping the rewards - as long as they can get their money into non-paper assets before the inevitable hyper-inflation kicks in, but in the interim, those needing to refinance with bad credit are going to be paying through the nose.