100% Home Equity



House 100% home equityA home equity loan is a type of loan where the borrower uses the equity in their home as collateral, much like a traditional mortgage.  The 100% home equity loan, otherwise known as a second mortgage, allows you to borrow the full value of your home’s equity.

I’ll give you a scenario: if your home’s fair market value is $100k and you still owe $40k on your mortgage, you have $60k in equity.  You can borrow up to 100% of your home equity, and in some rare cases even more (known as over-equity loans).  So, in our scenario you would receive $60k.

There are, of course, pros and cons of the 100% home equity loan.  The advantages are that you can use the money on anything you would like.  The most common uses tend to be home renovation/remodeling projects, college education, purchasing a car, debt consolidation and tax breaks.  You also tend to get a better interest rate, as the collateral of your home is considered highly secure.  The disadvantage is that taking out a home equity loan effectively reduces your equity.  This can limit your options in the future; if you decide to sell, for instance.

100% home equity loans are closed end loans, meaning that you receive a lump sum at a fixed rate that is amortized over 15 or 30 years.  This is different from a home equity line of credit, or HELOC, which is an open end loan.

There are some things banks will look for when approving you for a home equity loan:

  • Credit rating, often 640 or sometimes higher
  • Employment and documented income
  • Ownership of home for a set period of time, usually 6 months
  • The loan must be on a primary residence
  • No recent bankruptcies or foreclosures, often as far back as 2 years or more

Just as with anything else in life, certain fees and hidden charges apply to a 100% home equity loan.  The good news is that some of these fees can be reduced or even waived.   A list of possible fees are:

  • Closing fees
  • Title fees
  • Arrangement fees
  • Appraisal fees
  • Originator fees
  • Early pay-off fees (often only charged within a certain time, usually 36 months.  And is often capped, often 1% of the loan)
  • Surveyor fees
  • Valuation fees

That’s a lot of fees.  As they say: they nickel and dime ya!  Make sure you read the fine print and ask any questions if you see anything you don’t understand.  Some of these fees may not be charged until the loan is fully paid off, making the final payment somewhat of a bubble payment.  This can often be avoided by paying slightly more than your monthly premium.