Home equity loan rates

Calculating the interest rates for home equity loans is something akin to calculating the atomic weight of an unknown substance while in a dark room wearing a blindfold and using only a pair of cooking tongs and an abacus. One thing both the banks and the governments are extremely good at doing is providing such a massive collection of rules and regulations on any given subject that anyone with an IQ outside the top 2% of the population is unable to understand them.

Calculating interest rates is not rocket science, but anyone considering a home equity loan will be faced with an enormous array of conflicting information and a range of different home equity loan rates, payback schedules, hidden fees and minimum requirements enough to persuade them they would be better served knocking off a liquor store than attempting to apply for a bank loan against their home equity.

There are several things to take into consideration when the banks determine the level of interest you are going to pay: The amount of the loan; the loan to value percentage (i.e. what percentage of the value of the house the loan is against); and perhaps more importantly, your credit rating. So, let me clear one thing up for you – at the time of writing this (August 2009) - if your FICO credit score is below 659 – you are not going to be able to get a home equity loan from a “reputable,” lender. They simply do not offer them. You can stop reading now. Do not listen to anyone who tells you that for an up-front fee, they can arrange one for you, because they cannot. They may be able to arrange something though some other type of lending institution, but it will almost certainly be of the loan shark variety. Although – you could argue that the so-called “reputable lenders,” are, in fact, loan sharks. Sorry.

There is also a slight variation between states, sometimes, depending on the phase of the moon, favorable or unfavorable portents in the sky, and the current cost of chartering a private jet to Aruba. As an example, these are the current home equity rates for a $30,000 loan in Virginia.

Now, when you look at this table, you are probably going to be saying a couple of things to yourself. They are probably going to be, “Gosh – there is an awful lot of difference between paying 5.5% or 11.74% on a loan of that size. I wonder how they get away with that?” And you would not be wrong in your assessment. Basically, the banks are now charging whatever they think they can get away with depending on how desperate you are. The other thing you are probably saying is, “Holy crap Batman, Bank of America is charging 11.74% for a home equity loan? There is a word for that.”

The word you are looking for is “usury.” Considering Bank of America received somewhere in the region of $45 billion of tax payers money, and god knows how much in government guarantees of their “bad assets,” you would think they had some sort of public duty to provide loans to the American public at a reasonable rate. Unfortunately, the reverse is true and they are currently the most expensive bank on my list. If you were wondering where all that taxpayer money disappeared to – it is apparently not being lent out, and is no doubt floating around on the banker’s equivalent of a roulette table – mortgage backed derivatives. I am not going to try and explain what a mortgage backed derivative is – suffice to say, the current financial crisis is due in large part to the fact that no one knows what they are - including the bankers who gambled the nation’s financial health on them. Still, in case you were worried that these poor souls would not be getting a bonus this year, you can rest easy. The New York Attorney General’s recent report shows that 6 of the 9 top banks who received government bailout money paid out more in bonuses to their executives than they made in profit so far this year. Comforting news.

Another thing you might be saying is, “Wait a minute, I thought the interest rate was at an historic low of 0.25%?” And you would be correct also. If you were under the impression that this low interest rate was in some way supposed to benefit the American public, perhaps allowing those with bad credit to refinance their home at a reasonable rate, allow me to divest you of that opinion. The low interest rate and process of quantatative easing (printing money) is an effort to restore some sort of "profitability," to the banking system and stock markets to prevent them from collapsing completely. It most certainly is not to help people with bad credit refinance. You could argue that this is of benefit to the American public, but seeing as the banks are still insisting on paying their executives massive bonuses unrelated to performance, and are still in the business of gambling the money rather than lending it out, I would be forced to disagree. If you think the home equity loan rates are bad, wait until you try to refinance a mortgage with poor credit ratings.

As always, the level of disinformation being pounded out by the government is astounding and confusing. Intentionally so. The more confused you are, the less able you are to ask sensible questions. I do not see an end to the madness in the short term future, and the incessant talk of a recovery is just that – talk. I did come across a term recently that was written with the sole purpose of misinforming people – “jobless recovery.” Whatever may happen, this is one thing that cannot. No jobs means no income means no recovery. If, by some strange quirk of financial regulating, the government Inc does manage to arrange a jobless recovery, I can see only one result - blood in the streets.