The Home Equity Conversion Mortgage (HECM) more commonly referred to as reverse mortgages was created by the Federal Housing Administration (FHA). These Federally insured loans are designed for borrowers over the age of 62. They truly are a mortgage in reverse. A reverse mortgage will eliminate the borrower's current monthly payment and give them access to the available equity in their home.
Over time a reverse mortgage balance will grow. The monthly payment has been eliminated and the loan will accrue an interest charge each month which is added to the balance of the loan. This type of loan is referred to as a negative amortization loan. Rather than paying down the balance as you would on a traditional mortgage loan your loan balance grows over time. Because these loans are federally insured by the FHA there was quite a bit of thought that was put into determining the size of these loans. The size of any loan as compared to the value of the home is known as the loan to value ratio. On a traditional or forward loan through the FHA you can cash out up to 85% of your home's value. The remainder, after you have paid your existing mortgage balance and customary closing cost is yours to use as you wish. A reverse mortgage's starting loan to value ratio is much lower than a traditional refinance. The FHA has a formula that takes into consideration the borrowers age, life expectancy, home value and location of the property to determine the available loan to value on a reverse mortgage. The rule of thumb is to take the youngest borrower's age and subtract 10 years to determine the maximum allowable loan to value on a reverse mortgage transaction. You should consult a reverse mortgage lender to determine what you may qualify for. The reason for this lower qualifying loan to value is twofold. First the Federal Housing Administration understands that these loans will accrue interest charges over time and the balance will grow. Second reverse mortgages were not designed for equity poor borrowers. The idea is that a typical senior has paid for their home for the majority of their adult lives and now may qualify to benefit from that increasing home equity that they have worked so hard to build.
There are four ways to access the equity in your home through a reverse mortgage program. You can take the money in a lump sum at the time of settlement as you would in a traditional loan. You can set the available equity aside as a line of credit that you can use as you need it. The line of credit option takes into account that your home will most likely appreciate over time and the available credit also increases each year that the line of credit remains open. You can use the available equity to pay your self a pre determined amount each month over a certain period of time. Finally the lender can determine, based on the available equity, a term payment. This term amount would be paid to the borrower each month for the remainder of their life.
There are some common misconceptions about reverse mortgages. One misunderstanding is that the bank owns my house when I die. If you have a traditional mortgage or a reverse mortgage and something happens to you and the payments lapse the bank does own your house and will begin foreclosure proceedings. That's the reality of any mortgage loan. Similar to a traditional loan a reverse mortgage lender will place a lien against your home for the amount owed. If you have had a legal will and testament drafted or if your property is held in trust, as is the case on a traditional loan, you are still the vested owner of the property and your heirs have a right to any available equity should something happen to you.
I lose my mortgage interest tax deduction. This one is true. This is because you are no longer paying interest instead interest is accruing against your home. The reverse mortgage has eliminated your mortgage payment. Any refund on your taxes based on mortgage interest paid will be more than made up for by the fact that there is no longer a monthly mortgage payment. Additionally, any proceeds you take from a reverse mortgage are not considered income, are not taxable and have no affect on your current social security, Medicare or Medicaid benefits.
My heirs are not over 62, if something happens to me they do not qualify for a reverse mortgage, then what? As I mentioned, you remain the vested owner of your home. If the home is left to your heirs who are under 62 years of age they have the option to sell the property or refinance the reverse mortgage loan into a traditional loan. The Federal Housing Administration considers reverse mortgages as non-recourse loans. What that means to you is that the reverse mortgage will never be greater than the fair market value of your home. Let's say you beat the odds and live a lot longer than the formulas and experts thought you would live. You live to be 110 years old. As long as you are the vested owner and the home is your primary residence the reverse mortgage will remain outstanding against your home. After your passing the reverse mortgage has grown to a balance of $125,000.00. Your heirs look at the neighborhood and surmise that they can not get anymore than $120,000.00 for the home. They list the home, accept offers and will need to have the property appraised. If it is determined that $120,000 is actually the fair market value of the home; as a non-recourse loan the reverse mortgage with a $125,000.00 balance will be considered paid and satisfied after the fair market sale of the home of $120,000.00.
The intention of this article was to give the reader a better understanding of what a reverse mortgage is, how it works and to address some of the more common misunderstandings about reverse mortgages. I am sure that you probably have more questions. If your home is in Arizona and I can be of further assistance, please visit my web site [http://www.az-homeloan.com] for additional information. The most important thing is that you contact a trusted mortgage professional to answer your questions and guide you through the reverse mortgage process.
Over time a reverse mortgage balance will grow. The monthly payment has been eliminated and the loan will accrue an interest charge each month which is added to the balance of the loan. This type of loan is referred to as a negative amortization loan. Rather than paying down the balance as you would on a traditional mortgage loan your loan balance grows over time. Because these loans are federally insured by the FHA there was quite a bit of thought that was put into determining the size of these loans. The size of any loan as compared to the value of the home is known as the loan to value ratio. On a traditional or forward loan through the FHA you can cash out up to 85% of your home's value. The remainder, after you have paid your existing mortgage balance and customary closing cost is yours to use as you wish. A reverse mortgage's starting loan to value ratio is much lower than a traditional refinance. The FHA has a formula that takes into consideration the borrowers age, life expectancy, home value and location of the property to determine the available loan to value on a reverse mortgage. The rule of thumb is to take the youngest borrower's age and subtract 10 years to determine the maximum allowable loan to value on a reverse mortgage transaction. You should consult a reverse mortgage lender to determine what you may qualify for. The reason for this lower qualifying loan to value is twofold. First the Federal Housing Administration understands that these loans will accrue interest charges over time and the balance will grow. Second reverse mortgages were not designed for equity poor borrowers. The idea is that a typical senior has paid for their home for the majority of their adult lives and now may qualify to benefit from that increasing home equity that they have worked so hard to build.
There are four ways to access the equity in your home through a reverse mortgage program. You can take the money in a lump sum at the time of settlement as you would in a traditional loan. You can set the available equity aside as a line of credit that you can use as you need it. The line of credit option takes into account that your home will most likely appreciate over time and the available credit also increases each year that the line of credit remains open. You can use the available equity to pay your self a pre determined amount each month over a certain period of time. Finally the lender can determine, based on the available equity, a term payment. This term amount would be paid to the borrower each month for the remainder of their life.
There are some common misconceptions about reverse mortgages. One misunderstanding is that the bank owns my house when I die. If you have a traditional mortgage or a reverse mortgage and something happens to you and the payments lapse the bank does own your house and will begin foreclosure proceedings. That's the reality of any mortgage loan. Similar to a traditional loan a reverse mortgage lender will place a lien against your home for the amount owed. If you have had a legal will and testament drafted or if your property is held in trust, as is the case on a traditional loan, you are still the vested owner of the property and your heirs have a right to any available equity should something happen to you.
I lose my mortgage interest tax deduction. This one is true. This is because you are no longer paying interest instead interest is accruing against your home. The reverse mortgage has eliminated your mortgage payment. Any refund on your taxes based on mortgage interest paid will be more than made up for by the fact that there is no longer a monthly mortgage payment. Additionally, any proceeds you take from a reverse mortgage are not considered income, are not taxable and have no affect on your current social security, Medicare or Medicaid benefits.
My heirs are not over 62, if something happens to me they do not qualify for a reverse mortgage, then what? As I mentioned, you remain the vested owner of your home. If the home is left to your heirs who are under 62 years of age they have the option to sell the property or refinance the reverse mortgage loan into a traditional loan. The Federal Housing Administration considers reverse mortgages as non-recourse loans. What that means to you is that the reverse mortgage will never be greater than the fair market value of your home. Let's say you beat the odds and live a lot longer than the formulas and experts thought you would live. You live to be 110 years old. As long as you are the vested owner and the home is your primary residence the reverse mortgage will remain outstanding against your home. After your passing the reverse mortgage has grown to a balance of $125,000.00. Your heirs look at the neighborhood and surmise that they can not get anymore than $120,000.00 for the home. They list the home, accept offers and will need to have the property appraised. If it is determined that $120,000 is actually the fair market value of the home; as a non-recourse loan the reverse mortgage with a $125,000.00 balance will be considered paid and satisfied after the fair market sale of the home of $120,000.00.
The intention of this article was to give the reader a better understanding of what a reverse mortgage is, how it works and to address some of the more common misunderstandings about reverse mortgages. I am sure that you probably have more questions. If your home is in Arizona and I can be of further assistance, please visit my web site [http://www.az-homeloan.com] for additional information. The most important thing is that you contact a trusted mortgage professional to answer your questions and guide you through the reverse mortgage process.
Before you start shopping around for a mortgage in the UK, it's important to understand how mortgages are regulated and sold. There are some things you need to know and consider before you can go out looking for a mortgage.
The Financial Services Authority (FSA) requires lenders to show you a special document called keyfacts. Make sure you read the keyfacts before getting a mortgage or choosing a financial advisor. The key facts will help you see the features of the mortgage product, how much it will cost you and also help you understand what service you are being offered. You'll also be able to use this document to compare mortgage products or services from different lenders.
Also, check that the firm you are dealing with is authorised by the FSA. If they are not authorised you will not have access to complaints procedures and compensation schemes if things go wrong.
Some of the things you should consider when choosing a mortgage lender includes:
- Competitiveness of the lender's rates,
- Mortgage fees and penalties,
- Customer service and the lender's reputation.
- Trust (You'll want a lender you can trust, and a company you can work with effectively since you'll have to deal with this lender for many years to come.)
Ask your friends or family for recommendations of potential mortgage lenders or brokers. Then contact some of the lenders and discuss your needs with them. Using keyfacts to compare different mortgage packages and services will help you get a better deal. Read expert opinions in national newspapers and magazines. These publications usually publish editorials that rate mortgage and loan deals from various banks and lenders. This information will give you a better idea of what to expect when you start shopping around for a mortgage.
Take time to choose a lender so that you can save money on your mortgage. There are hundreds of mortgage deals available out there so don't be tempted to settle for the first offer before finding out what deals are available elsewhere. Shopping around for a mortgage will help you to get the best financing deal. If you don't have the time to do it yourself, you can use the services of a broker or use an internet site that offers a mortgage comparison facility.
Finally, think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
The Financial Services Authority (FSA) requires lenders to show you a special document called keyfacts. Make sure you read the keyfacts before getting a mortgage or choosing a financial advisor. The key facts will help you see the features of the mortgage product, how much it will cost you and also help you understand what service you are being offered. You'll also be able to use this document to compare mortgage products or services from different lenders.
Also, check that the firm you are dealing with is authorised by the FSA. If they are not authorised you will not have access to complaints procedures and compensation schemes if things go wrong.
Some of the things you should consider when choosing a mortgage lender includes:
- Competitiveness of the lender's rates,
- Mortgage fees and penalties,
- Customer service and the lender's reputation.
- Trust (You'll want a lender you can trust, and a company you can work with effectively since you'll have to deal with this lender for many years to come.)
Ask your friends or family for recommendations of potential mortgage lenders or brokers. Then contact some of the lenders and discuss your needs with them. Using keyfacts to compare different mortgage packages and services will help you get a better deal. Read expert opinions in national newspapers and magazines. These publications usually publish editorials that rate mortgage and loan deals from various banks and lenders. This information will give you a better idea of what to expect when you start shopping around for a mortgage.
Take time to choose a lender so that you can save money on your mortgage. There are hundreds of mortgage deals available out there so don't be tempted to settle for the first offer before finding out what deals are available elsewhere. Shopping around for a mortgage will help you to get the best financing deal. If you don't have the time to do it yourself, you can use the services of a broker or use an internet site that offers a mortgage comparison facility.
Finally, think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
Do you need cash in order to pay down some outstanding bills or to pay for an unexpected expense, such as a trip or a medical emergency?
If you are a homeowner, you may be in luck. For homeowners, there are two ways you can leverage the equity you have in your home in order to get the cash you need. The first way is to take out a second mortgage loan. The second way is to refinance your home.
What if you have a bad credit score? No worries: since you will be using the equity in your home as a form of loan collateral, you can still qualify for reasonable second mortgage loan interest rates - even with a low credit score.
If you are trying to decide between bad credit second mortgage loans and home refinancing, here are 5 FAQs that can help:
1. What is the difference between second mortgage loans and home refinancing?
A: A second mortgage loan - also known as a home equity loan - involves leaving your existing first mortgage alone. Instead, you are just taking out an additional mortgage, usually at a higher interest rate than you have with your first mortgage.
On the other hand, with a home refinancing loan, you are paying off any existing first and/or second mortgages with a new mortgage loan. And if you need extra cash in the process, you just take out a larger loan than what you currently owe on your home now. You end up with a larger loan principal and possibly slightly higher monthly payments, but you will have the cash you need.
2. Which type of loan is easier to qualify for if I have a bad credit score?
A: Both types of loans are easy to qualify for if you have a bad credit score. In both cases, the lender will look at several factors, including your credit score, the total amount of your outstanding (first and/or second) mortgage principal, and the current market value of your home.
3. Which option will allow me to get more cash in hand?
A: Both loans turn out about the same in this regard. Whether looking for a second mortgage or a home refinance, keep in mind that each lender will offer a certain loan-to-value (LTV) type loan. For example, an 80% LTV loan means that you will be able to borrow up to 80% of the total equity in your home. The higher the LTV, the more you can borrow.
4. Which option is lower cost to me in the long run?
A: Refinancing your existing home loan may be less costly, since it gives you the opportunity to possibly qualify for a lower interest rate than you have on your existing first mortgage. The result could be an overall lower cost of loan, which would save you more money in the long run.
5. Which option is faster?
A: Taking out a second mortgage (a home equity loan) is probably the fastest route for you to take because doing so does not involve your having to shop for a completely new first mortgage. In most cases, qualifying for a second mortgage loan takes less than an afternoon.
Bonus tip: if you have a bad credit score, be sure to shop for "bad credit second mortgage lenders" or "bad credit home equity loan lenders." These are the ones that are most likely to approve your loan, despite your low credit score.
If you are a homeowner, you may be in luck. For homeowners, there are two ways you can leverage the equity you have in your home in order to get the cash you need. The first way is to take out a second mortgage loan. The second way is to refinance your home.
What if you have a bad credit score? No worries: since you will be using the equity in your home as a form of loan collateral, you can still qualify for reasonable second mortgage loan interest rates - even with a low credit score.
If you are trying to decide between bad credit second mortgage loans and home refinancing, here are 5 FAQs that can help:
1. What is the difference between second mortgage loans and home refinancing?
A: A second mortgage loan - also known as a home equity loan - involves leaving your existing first mortgage alone. Instead, you are just taking out an additional mortgage, usually at a higher interest rate than you have with your first mortgage.
On the other hand, with a home refinancing loan, you are paying off any existing first and/or second mortgages with a new mortgage loan. And if you need extra cash in the process, you just take out a larger loan than what you currently owe on your home now. You end up with a larger loan principal and possibly slightly higher monthly payments, but you will have the cash you need.
2. Which type of loan is easier to qualify for if I have a bad credit score?
A: Both types of loans are easy to qualify for if you have a bad credit score. In both cases, the lender will look at several factors, including your credit score, the total amount of your outstanding (first and/or second) mortgage principal, and the current market value of your home.
3. Which option will allow me to get more cash in hand?
A: Both loans turn out about the same in this regard. Whether looking for a second mortgage or a home refinance, keep in mind that each lender will offer a certain loan-to-value (LTV) type loan. For example, an 80% LTV loan means that you will be able to borrow up to 80% of the total equity in your home. The higher the LTV, the more you can borrow.
4. Which option is lower cost to me in the long run?
A: Refinancing your existing home loan may be less costly, since it gives you the opportunity to possibly qualify for a lower interest rate than you have on your existing first mortgage. The result could be an overall lower cost of loan, which would save you more money in the long run.
5. Which option is faster?
A: Taking out a second mortgage (a home equity loan) is probably the fastest route for you to take because doing so does not involve your having to shop for a completely new first mortgage. In most cases, qualifying for a second mortgage loan takes less than an afternoon.
Bonus tip: if you have a bad credit score, be sure to shop for "bad credit second mortgage lenders" or "bad credit home equity loan lenders." These are the ones that are most likely to approve your loan, despite your low credit score.
When borrowers supply their forms of request for a mortgage loan, lead providers generate leads from the data supplied by borrowers and mail them to several brokers or lenders. Very often these leads get recycled, as they move from one broker or loan officer to the other. Such leads are known as Non Exclusive Mortgage Leads.
Though Non Exclusive Mortgage Leads have a downside related to confidentiality and speed of transfer, they are less expensive than Exclusive Mortgage Leads. More importantly, they can offer the best deal to the borrower. Let's take an example.
Maggie applies for a Non-Exclusive Mortgage Loan at a mortgage lead providing company. As hers is a Non Exclusive Mortgage Lead, the lead provider sends her lead to several loan officers and these people get in touch with her. As the loan officers increase, competition becomes stiffer. It is much like the difference between one person spending $100 and several people sharing the same $100.
In other words, in Non-Exclusive Leads, the chance of Maggie's bargaining with loan officers and getting the best deal is very bright. Though there is a basic difference between Exclusive and Non-Exclusive Mortgage Leads, in terms of confidentiality and competition, the mode of transfer of information from the Borrower to the Lender, through the Broker or otherwise, at the Lead Provider's Office or Online, face-to-face or telephonic, is a different matter that concerns speed.
Non Exclusive Mortgage Leads are less expensive for the lender to buy, but the competition is higher. This means that the lender has less choice dealing with Non Exclusive Leads than Exclusive Leads. This becomes the plus point for the borrower.
Exclusive Mortgage Leads provides detailed information about exclusive mortgage leads, exclusive internet mortgage leads, exclusive telemarketing mortgage leads, exclusive real time mortgage leads and more. Exclusive Mortgage Leads is the sister site of Life Insurance Leads.
Though Non Exclusive Mortgage Leads have a downside related to confidentiality and speed of transfer, they are less expensive than Exclusive Mortgage Leads. More importantly, they can offer the best deal to the borrower. Let's take an example.
Maggie applies for a Non-Exclusive Mortgage Loan at a mortgage lead providing company. As hers is a Non Exclusive Mortgage Lead, the lead provider sends her lead to several loan officers and these people get in touch with her. As the loan officers increase, competition becomes stiffer. It is much like the difference between one person spending $100 and several people sharing the same $100.
In other words, in Non-Exclusive Leads, the chance of Maggie's bargaining with loan officers and getting the best deal is very bright. Though there is a basic difference between Exclusive and Non-Exclusive Mortgage Leads, in terms of confidentiality and competition, the mode of transfer of information from the Borrower to the Lender, through the Broker or otherwise, at the Lead Provider's Office or Online, face-to-face or telephonic, is a different matter that concerns speed.
Non Exclusive Mortgage Leads are less expensive for the lender to buy, but the competition is higher. This means that the lender has less choice dealing with Non Exclusive Leads than Exclusive Leads. This becomes the plus point for the borrower.
Exclusive Mortgage Leads provides detailed information about exclusive mortgage leads, exclusive internet mortgage leads, exclusive telemarketing mortgage leads, exclusive real time mortgage leads and more. Exclusive Mortgage Leads is the sister site of Life Insurance Leads.