Home Mortgage Types: Reverse Mortgages
Posted by admin on Jul 18, 2009
Do you have significant equity tied up in your home mortgage? Do you need a new source of income? And are you at least 62 years old? If you answered yes to all three questions, you should give serious thought to a reverse mortgage. In a reverse mortgage, a lender makes reverse home mortgage payments to you out of the equity you have invested in your house. You may choose to get the value of your property in monthly payments or in a lump sum. You are allowed to remain in your house until you move away, enter a retirement community or nursing home, or pass on.
Will a reverse mortgage cancel out any other home mortgage I may have?
No, but the proceeds of the reverse mortgage will pay off the remainder of your home mortgage. In some areas, homeowners are not allowed to have both a regular home mortgage and a reverse mortgage on the same piece of property. If you live in one of those areas, you will be required to put your reverse mortgage payments toward your home mortgage, and will not be able to use the income for other purposes until your mortgage is paid off.
If I take out a reverse mortgage on my house, can I still leave the house to my heirs?
Yes. Your heirs may repay the value of the reverse mortgage, attempt to sell the house to cover the cost of the reverse mortgage, or let the bank or other lender resell the house itself. It is possible for your heirs to cover the cost of the reverse mortgage, effectively taking out a new home mortgage on it. However, taking out a reverse mortgage strongly decreases the likelihood that the property will stay in the family. Consider a reverse mortgage only if passing on your house to your heirs is not important to you.
What happens if the lender finishes making all the loan payments during my lifetime?
If you take the value of the loan as a series of payments, and you receive the last payment (that is, the full value of the house) well before you plan to leave the house, you are not required to give your house to the lender and leave. You may keep the money and continue to live in the house for as long as you need or want to. Staying in the house will not create a debt for you, your heirs, or your estate. In fact, it is not possible for a reverse mortgage to put you into debt. This is one of several points that makes reverse mortgages more attractive than a regular home mortgage.
The rate cut followed on the heels of a surprise half point cut that took place only three weeks prior, and was preceded by several other rate cuts that lowered the federal funds rate from its late 2006 and early 2007 high of 5. 25 percent. The latest rate cut was not a surprise to financial analysts, but they were not certain how much farther the Fed would be willing to go in trimming interest rates that were already close to the bottom.
The rate cut should be a boon to borrowers. The Fed’s interest rates strongly influence lender set interest rates, leading consumer rates on mortgages, auto loans, credit cards, and similar types of debt to trend downward when the Fed cuts rates.
Legitimate mortgage fees might look staggering on paper, but they don’t come to more than 1% of the amount of the mortgage. Predatory mortgages usually saddle borrowers with fees of 5% or more.
* Yield spread premiums. This official sounding piece of jargon is a euphemism for a kickback paid to the broker for finagling you into taking on a much higher interest rate than you would be qualified to get from a legitimate lender. A legitimate loan will never have a yield spread premium on any account.
Do not apply for mortgage refinancing if you owe more than your home is worth. And many banks are now requiring that you have at least 20 percent equity in your property before you can even be considered for mortgage refinancing. If you pass the home equity test, move on to calculating the cost and benefits of mortgage refinancing.
The first step is to calculate how much you would save each month by comparing your original mortgage interest rate to the current rate. Then work out what the total cost of the mortgage refinancing will be.
Taking the extra time to research the differences between home mortgage products will save you from future financial disaster. And do stay within your financial means. A lender will present you with the amount of the loan you qualify for, which usually is an amount higher than that which you can reasonable afford. Go into your meeting with your lender prepared with a figure that you can live with and do not let yourself be seduced by a higher qualifying amount.
The home mortgage loan approval process is pretty straightforward and includes the following stages: prequalification, application, document review, appraisal, and approval.
Increasing the amount of credit available to you will raise your credit score by improving your ratio of debt to available credit.
* If you are having difficulty because you have no credit history, get a credit card designed for people with nonexistent or poor credit. Avoid credit cards with dangerously high interest rates, monthly or weekly fees, or other riders that will put you in an even worse credit situation.
* Check all your credit reports and contest any inaccurate information on them.
Once you have done everything you can, wait.
Great post.
Compliance to Repay
Another factor necessary in securing a home loan is your compliance or eagerness to repay the loan. Your credit report is one way that lenders can ascertain the likelihood you will pay your loans back on schedule. The purpose of a credit report is to inform lenders whether or not you have paid past debts fairly and on schedule. If you have always paid loan installments on time and in the sum requested, you will be a more attractive borrower. If you have paid loan payments in full and on time, you have a better chance of getting a loan from lenders.
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