Reverse Mortgage

The reverse mortgage turns the equity of the home into tax free cash. Reverse mortgage is more of a loan advance. While the borrower lives in the home, the borrower does not repay the loan.

Any senior who is sixty two years or older is eligible for the reverse mortgage. The home must have some kind of equity. And, the home is the primary residence of the borrower. Depending on the mortgage lenders, the mortgage lenders may require single unit, condo, or townhouse.

Reverse mortgage differs from home equity loan. The mortgage lenders pay the borrower the lump sum, regular periodic payment, line of credit, or combination. The line of credit allows the borrower to choose how and when to get payment. The repayment of loan only happens in reverse mortgage when borrower permanently moves, dies, or sells.

Let us compare with traditional mortgage to better understand reverse mortgage. Any type of mortgage creates debt. A debt is the difference between amount own and amount owe. Traditionally, the home equity increases and debt decreases. In reverse mortgage, the home equity decreases and debt increases.

At the time of repayment, the mortgage lenders use the home to repay the loan. The home pays off the principal, interest, and closing costs of reverse mortgage. Anything extra goes to the remaining relatives. In case of deficit, the mortgage lenders make up for the deficit.

Since the borrower retains the title of home on reverse mortgage, the borrower remains the owner of the home. The borrower is responsible for the maintenance, property tax, insurance, and utilities.

The mortgage interests in reverse mortgage are not mortgage interest tax deduction. However, the borrower can claim the mortgage interest on current first and second mortgage. Even though the borrower is still paying off the first and second mortgages, the mortgage lenders can allow the borrower to go on reverse mortgage.

The borrower can owe only on how much is the home. The mortgage lenders can only go after the house to pay off the mortgage. The assets and estate of the borrower are safe from the mortgage lenders. This is more commonly known as non-recourse loan.

Read More

Understanding Mortgages Better

The various terms, rules, fees and options that are associated with a mortgage application are enough to scare a first-time mortgage applicant. Even to a person who has had a mortgage before, all these things could become somewhat intimidating and scary. Hence, it is necessary to understand mortgages thoroughly in order to use them to the hilt.

Some tips and illuminating facts on mortgages are given below:-

(1) Types of Mortgages – There are three main types of mortgages being used today: the fixed rate mortgages, convertible mortgages and the special mortgages.

With fixed rate mortgages, there are options to make the repayments in 30 years or 15 years. In the latter the interest will be half the former, but the monthly payments would be higher since the loan is to be covered in shorter time. There is also an option of biweekly payments on the 30 year mortgage, which can reduce the repayment time by about seven years. Apart from these, there is an adjustable rate mortgage where the rate fluctuates according to prevailing market conditions.

Convertible mortgages have five types. The first are the hybrid and convertible ARM, where the borrower is allowed to switch between a fixed rate and an adjustable rate if the market rate goes down. The second are the balloon loans in which the person makes low payments throughout the tenure of the loan, but needs to make a lump sum payment at closure. Similar to this is the third type – the interest only loans – but in this periodic lump sum payments are to be made, which normally are scheduled when the borrower gets his/her bonuses. There is a fourth type known as reverse mortgages for people who have good equity on their houses. With these loans no repayments are to be made until and unless the house is to be sold. Buy down loans, the fifth type, are dependent on the points to lower interest rates.

Special mortgages include the FHA loans and the Veteran Affairs loans. These are available for people with bad credit ratings and for people in the armed forces respectively.

(2) Fees – All mortgages have fees to be paid other than the principal itself and the interest. The different heads under which fees are to be paid are:-
a) Appraisal – These are the charges for calculating the present market worth of the house intended to be purchased.
b) Organization – These are the charges for processing the application and other related duties.
c) Down payment – This is the portion of the total house cost that needs to be paid upfront, before the loan could be processed.
d) Closing costs – These are the charges to be paid when the loan is ended. The charges go towards transferring the title of the home ownership from the lending bank to the borrower’s name.

(3) Terms – The common terms used with regards to loans could turn out to be quite complex in nature. The following are some of the terms commonly used:-
a) Points – Points are charges that are paid in order to lower the interest rate. Points are generally paid in a lump sum amount at closing time.
b) Good faith estimate – This is the total in amount of fees that is to be paid at closing time.
c) Loan locks – In fixed rate mortgages, the borrower may want to lock the interest rate when it is at ebb. There are charges for locking this rate of interest. But if the borrower does not want to lock the loan, then both the borrower and the lender could arrive at a mutually agreeable rate of interest.
d) A truth in lending disclosure – This is a form that gives the complete cost of the loan in both percentage and dollar form.
e) Pre-qualifying – This is the term used if the borrower qualifies for a loan before he/she makes an application for the same. This gives a clear idea to the borrower in advance how much credit would be available to make the final purchase, thus enabling negotiations with the seller.
f) PITI – PITI stands for principal, interest, taxes and insurance. These are all taken into account when calculating the amount of payment to make per month.
g) Escrow – Escrow is a third party account which holds money and important documents when the loan is going on. It is held as a kind of security for both the borrower and the lender.

This is only the tip of the iceberg when it comes to getting mortgage information, but it does try to cover the aspects of a normal loan application procedure. If you encounter something that you don’t understand, then do not hesitate to approach a financial consultant before signing on the dotted line.

Read More

Important Information on Home Loan Refinance

Deciding on a home loan refinance may be your best financial decision if done at the right time and with the right circumstances. Simply put, home refinancing is the process of changing your home mortgage to another which suits your needs better. It means that you have to take out on a new loan, and use it to pay your existing home loan.

Home loan refinance is a very promising financial move, but it can only reap about best results when carefully thought of. Through refinancing, you may be able to lock in with a lower, steadier interest rate without having to worry about balloon payments. However in some unfortunate cases, refinancing may cost more than it will save. It is then a decision that should never be taken for granted.

Reasons Why People Refinance

There are many reasons why people choose to refinance their home loans. You may want to get some funds to renovate your home, pay off all your others debts in a quick way, or raise some cash for a major purchase or for a vacation. In a more practical sense, most people opt for a home loan refinance in order to get a cheaper rate to pay. A few also resort to refinancing in order to switched from a fixed rate mortgage terms to a more variable rate, or from a variable to a fixed rate, for one reason or another.

If you are caught in either of the situations given above, you can go for a home loan refinance. Bear in mind that it is best to start with a clear and specific set of goals. Whether you want to cut down on your repayments, improve your home or free up some cash, it is important that you have a target objective. This will make the entire refinancing process smooth and trouble-free.

The process of getting a home loan refinance will usually take some time, effort and money. You should first find out what the approximate fees and charges are for refinancing. Most likely, your lender will charge you for your application fees starting with loan refinancing down to credit checking. On top of this, lenders may also charge you for title search and insurance to cover the cost of property research and policy. Also, loan origination fees may be imposed by your lender as they prepare you a new set of mortgage terms and arrangement. To get the best deal out of your home loan refinance, shop around for good offers provided to you. It is most advisable to do some comparison shopping in terms of services to get the best deal out of your refinancing cost.

The rule of thumb in refinancing states that a home loan refinance will only make sense if your interest rate gets lowered by at least 2 percent. However, know that mortgage terms are not created equal. Before deciding to refinance, make sure that you carefully consider all the aspects of the new mortgage and make sure that you will get a better deal than your previous one.

Read More

Basic Information You Need to Know about Getting Home Mortgage Loan

Everyone surely believes that courage, hard work and determination are the keys to financial prosperity. One of the most predominant symbols of stability is owning a house. More often than not, owning a house today means getting a home mortgage loan for finance the purchase. A home mortgage basically entails that you pay a certain amount of monthly payment over an extended period of time (also called term, usually lasting 10 to over 30 years).

When you get yourself a home mortgage loan, it usually covers four inclusions, namely the principal amount, the interest you owe on the balance, homeowner's insurance as well as real estate taxes. There are two different types of home mortgages, the fixed rate (where your monthly payment remains the same) and the adjustable rate (where monthly dues fluctuate), Your home mortgage loan can also include conventional, non-conventional, interest-only, reverse mortgages and home equity loans, among many others.

Who can qualify for a home mortgage loan?

Anyone who has a stable income and has a nice financial standing can well qualify for a mortgage. Those with poor credit ratings may also qualify, usually at the expense of increase interest rates. Furthermore, there are many ways by which you can achieve financial stability faster with home loans. You can for example, make a large down payment to lower your rate and to make it easier for you to get approved.

The key to success in your home mortgage loan is planning ahead. A home is certainly a major purchase and preparing for it should be the way to go. You should start to aggressively save as much money as you can years before planning on your major home purchase. Get as much help as you can, sell your investments and assets if need be, use your pension plan funds or personal savings - these are all good ways to get yourself the down payment you need.

How to apply for a home mortgage loan?

There are only three steps you need to take to apply for a mortgage. First, you simply fill out an application form and schedule a meeting with your lender. You must present all supporting evidence about your identity, financial status and credit situation. You usually need to pay around $100 to $300 for this. The next step to do is to wait for your lender to obtain your credit report for you and to verify your application and financial status.

After these two steps, your next move is to determine whether or not you should be approved or not. The decision of your lender would rely mostly on your credit standing, your financial history and the appraisal of your collateral.

You can speed up the entire application process by first checking whether you are qualified for such a loan. If you think you are, complete all your requirements and financial paperwork beforehand, ready for submission anytime your lender wants them. It is also not a bad idea to check on your application every now and then, as it will call their attention for sure.

Read More