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An Unbiased Look at Reverse Mortgage Pros and Cons

October 30th, 2011



Reverse Mortgage Home Loans are Widely Debated

A reverse mortgage is not just an average home loan. Instead of making monthly payments, the homeowner actually receives money from the lender based upon the amount of equity in the home. The most common type of this loan is called the Home Equity Conversion Mortgage (HECM). This loan, which is geared toward seniors, has been around since the 1960s, but still generates much debate today. Continue reading to learn about the advantages and disadvantages of this type of financing.

Advantages of the Reverse Mortgage Home Loan

The reason that this type of loan is known as a “reverse” mortgage is that the homeowner does not have to make monthly payments toward the loan balance. The borrower instead receives tax-free money from the lender that he can spend in any way he chooses. The money can be received in the form of a lump sum, a line of credit, or a monthly payment. Because the borrower is receiving money instead of spending it, he has more financial flexibility and does not have to fear the repercussions of missing a monthly payment.

Another advantage of this loan is that it does not have to be repaid until the owners no longer occupy the home. The final amount owed cannot exceed the value of the home, so the owner knows what to expect once the loan is due. The FHA insures the loan, which protects the borrower from owing the lender more than the value of their home and the lender from being left with an outstanding balance.

There are no income or credit score requirements, a fact which allows more people to be eligible for the loan. The only requirements are that the applicant be at least 62 years old and own their primary residence.

Disadvantages of the Reverse Mortgage Home Loan

If real estate taxes are not paid, homeowner’s insurance is not kept up to date, or the home falls into disrepair, the homeowner will be required to repay the loan in full.

Many seniors do not want to acquire more debt and a reverse mortgage adds to the owner’s debt over time. If the home value decreases, the amount of equity in the home is reduced even further, leaving less available equity in the future.

Once the benefits and disadvantages of this product are understood, individuals considering a reverse mortgage can make an informed decision. Contact a reputable reverse mortgage specialist or visit the US Department of Housing and Urban Development’s official website to learn more.

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Understanding No Money-Down Mortgage Loans

February 2nd, 2011



Most often than not, many people especially in the U.S. have a hard time saving money in purchasing houses since the price increases of homes do not usually match their average household income. Most mortgage companies require applicants to pay at least a down payment of 5% in addition to closing costs. On the other hand, many mortgage companies are now offering no money-down mortgage loans for people who cannot afford to pay costly down payments.

Some mortgage lenders offer homebuyers an 80/20 loan for no money-down mortgage loans. This option includes a mortgage of 80% of the asking price while the 20% is for home equity loan for the remaining balance. This can be very useful and convenient for homebuyers since they can avoid paying private mortgage insurance. In addition, they can also have a mortgage loan for 103% of the asking price, which allows them to pay down payment as well as a portion of closing expenses.

Homebuyers can purchase a home without down payment through a mortgage broker. Many mortgage companies are offering different loan programs with either zero or low down payment options. On the other hand, if you are planning to obtain such programs, you should be able to look for potential lender through a mortgage broker since they are associated with government programs, private lenders, and sub prime lenders among others. They can refer you to lenders that can help you obtain a zero down mortgage for your home. However, some lenders offer zero down payment loans to people with good credit rating only. This means that if you have bad credit, these lenders would not take a risk in granting your preferred loan.

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Mortgage

November 29th, 2010



A mortgage is a practice by which the ownership of the property is passed from the mortgagor, to the mortgagee, in return for the loan of the money, the mortgagee is the lender and the mortgagor is the borrower. The mortgagee has limited rights on the property until the loan is paid off. Most probably the mortgage loan is taken for home improvements, or financing college education. The interest rate for mortgage loan varies depending on the type of the loan

Mortgage banks and Mortgage brokers are the best options for reviewing of mortgage loan applications.

For Mortgage banks, the staff of the bank will process the loan application, as most of the
banks are controlled by the government agencies, the borrower can be assured that the mortgage loan will be approved and granted by reliable sources and there will be no discontinuation in the loan. The bank will provide a range of mortgage service providers for a particular loan application, and the borrower should select the best available option from them. The borrower should deal with the service providers, compare each of the interest rates and select the best option. The loan application will be processed much faster by bank staff.

Mortgage brokers will present the best available option for a particular loan; the brokers will provide the best option for a loan application that meets the borrowers’ needs. If the loan product is selected, then the borrower should deal directly with the service provider to finish the formalities. Most of the information on loan products of mortgage service providers will be available with the mortgage brokers.

The borrower before using the services of the brokers should verify whether the mortgage broker is registered with any reliable company or service.

Mortgage loan types

There are many types of mortgage loans available in the mortgage industry, but the two
most common types of loans are Fixed Rate Mortgage (FRM) and Adjustable Rate Mortgage (ARM).

For fixed rate mortgage, the interest rates are fixed and are high, the rates will not change
during the life of the loan, the repayment time ranges from 10 to 20 years.

For adjustable rate mortgage, the interest rate fluctuates with respect to a standard
market index, it will increase or decrease with respect to the index, the borrower cannot predict the interest rate for the next interest period before hand, if the interest rate increases, the borrower has to pay the extra cost, to avoid this, some lenders offer interest lock, using this, the borrower will repay the debt on a fixed interest rate for a particular period, the lender will charge extra money for this service. The repayment time ranges from 5-10 years.

The borrowers who borrow fixed rate mortgage loans are more financially secure than who borrows adjustable rate mortgage loans. The proceeds from adjustable rate mortgage negates any risk and most of the borrowers’ uses this loan as repayment mode.

Presently the mortgage markets in Asia are growing mush fast than the developed countries. In Asia, India has the second highest interest rate of 7%.In UK, interest rate for a 15-year fixed rate mortgage loan (FRM) is 12% and for 30-year adjustable rate mortgage is 15%.For a 1-year adjustable rate mortgage loan (ARM) is 4.05%.

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Mortgage Basic Terminologies

November 15th, 2010



Moving your family into a new home is something everybody looks forward to. For people who have enough cash to purchase the property outright this could be a simple walk in the park. But for the great majority of families who make up the homebuyer market, mortgage loans make the dream of owning a home possible. Deciding to finally make a home mortgage entails years of commitment. Knowing some simple facts and understanding some basic terminologies about mortgage could help you make a better decision before finally locking your name in the contract.

Mortgage

Mortgages are contracts made between a lender (mortgage institution) and a borrower. These contracts are done for the purpose of purchasing a new home by letting a bank finance the purchase. A borrower’s obligation to the lending institution is only terminated when they fully satisfy the conditions of the contract by paying the full amount of the loan in a predetermined number of years.

Downpayment

This is the initial amount paid for the buyer in financing the cost of the house. It is the amount subtracted from the total cost of the house to be financed by the bank or financial institution. A 5% downpayment is required by banks from the buyer for loan approval. 20% is the ideal figure for making a downpayment because it gives you an option of avoiding mortgage insurance that adds to the cost of the loan.
Private Mortgage Insurance (PMI)

Private mortgage insurance (PMI) is usually required for down payments lower than 20% percent. This is initiated by bank in order to protect itself from the risk of potential losses from loan defaults or foreclosures. PMI’s are not tax deductible, they add up to your monthly loan payments so making sure that you have at least a 20% downpayment is advised.

Amortization

A 30 year repayment is the most popular amortization schedule, however 15, 20, 25 year periods are available. Monthly payments are based on the type or length of amortization. The final figure or amount of monthly payment is calculated by multiplying the monthly interest on the amount borrowed to the loan and spread out through the repayment schedule.

Closing Costs

A “Good Faith” estimate is given to you once you have completed your application. This is a summary of projected cost such as fees for surveys, professional appraisals. It is important that you understand that they are just estimates and the final costs may vary from the estimated one.

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How to get the best deals on Wisconsin Mortgage Rates

August 14th, 2010



Getting the best mortgage rates is not at all a very easy task. You need to consider many things before you choose any of the mortgage rates. Wisconsin mortgage rates are said to be the best option. You may be wondering why it is so. They are not just helpful in providing you the best policy but also guide you in saving a large sum of money in the long span. The best point is that there are no complicated terms and conditions that are to be checked out as it was in many of the traditional policies.

You can very well apply for any such kind of mortgage loan, added that you have a very positive and strong credit background. The method of finding a mortgage lender is made very easy for the public’s convenience. You will find innumerable financial institutions that would be providing short term as well as long term loans on property.  In making this crucial decision it is advised to consult the opinions of close friends and relatives. As you know, mortgage loans are the long term loans issued by the banks and other financial institutions against the mortgaged property. But there are some points that are needed to get the loans. Firstly one needs to have a very healthy credit rating in the market. Be careful while choosing the Wisconsin mortgage rates as there are different rates available from different vendors. Thus, choosing the best policy that appeals you is a very necessary thing.

The smartest choice would be going for the lender that holds a very strong reputation in the market. There are two types of Wisconsin mortgage loans from which you can choose. The first being fixed mortgage loans where you need to pay a little interest for a certain time period. The other loan policy provides rates of variable loan policy which change according to the prevailing interest rates in the Market. The general lifespan if these mortgage policies is twenty to thirty years, but in the case of any requirements the policy is extended to even fifty years.

Another important thing that you need to check out is the fees the company demands for taking loans.  The various companies which are providing the mortgaged loans generally do not have any same details of the closing costs of the loans. Make a detailed study and decide which option is more beneficial for you.  

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Mortgage Refinancing: Saying No to Prepayment Penalties

August 5th, 2010



If you are refinancing your mortgage there are a number of fees and penalties you want to avoid paying. Many homeowners focus only on finding the best interest rate when refinancing their mortgage loans. These homeowners often overpay for everything else on their loans and take out mortgages with prepayment penalties. Here are several tips to help you avoid overpaying for your new mortgage with a prepayment penalty.

Mortgage lenders include prepayment penalties in their loan contracts to discourage borrowers from refinancing the loan. If you sell your home or refinance before the penalty expires you will be required to pay a fee. Prepayment penalties can be quite expensive; it is common for lenders to charge up to six months worth of interest on 85% of the original loan balance. If you finance your mortgage with a bad credit you can expect more stringent prepayment penalties included with your loan.

There are ways to avoid prepayment penalties, even if you have poor credit. The first thing you should check before mortgage refinancing is if your existing mortgage includes this prepayment penalty. If your current mortgage does not have a penalty or the penalty has already expired you are clear to begin mortgage refinancing. If your prepayment penalty has not expired, you can try negotiating with your current lender to see if they will discount or waive the penalty for you. If the existing mortgage lender will not negotiate you will be required to pay the penalty to refinance your loan.

When mortgage refinancing, most items on the loan contract are subject to negotiation. If you haven’t signed the contract and you find it contains a prepayment penalty, you should negotiate with the lender to have that penalty removed. If you have excellent credit your credit rating is a bargaining chip; threatening to find another mortgage lender will usually do trick. Another thing you could try is offer to pay an additional point in exchange for having the penalty removed. Points are a fee you pay in exchange for something from the lender. You can negotiate to pay points in exchange for a lower interest rate or more favorable terms, in this case to remove the prepayment penalty.

To learn more about mortgage refinancing while avoiding costly homeowner mistakes, register for a free mortgage guidebook.

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