Mar 16
adminCheap Mortgages
Even with a Chapter 7 bankruptcy in your credit report you can still qualify for a sub-prime mortgage. Once approved, you can then use your mortgage to improve your credit history, qualifying you for lower interest rates in the future.
The Effects of a Bankruptcy
A bankruptcy will affect your credit score based on how long ago it was. So a bankruptcy discharged less than a year ago will qualify you for a D loan. These types of loans usually require 30% down and a high interest rate.
By waiting a year after a bankruptcy, you can qualify for a B or C loan with their lower rates and down payment requirements. If you wait two years, you can qualify for a FHA home loan. In four years, you can qualify for a conventional loan.
Besides your bankruptcy record, financing companies will want to see a steady payment history. This includes your credit and rent payments. Cash reserves for six to twelve months will also offset your credit risk.
Search For Lenders
Not all sub-prime lenders evaluate borrowers the same way. So you may qualify for a B loan with one lender and a C lender with another. To find who will offer you the best financing, you will need to request quotes from several lenders.
You can request quotes over the phone or online. Online sites will provide a fairly accurate quote based on the generic information you provide. You can also use free mortgage broker sites which provide home loan quotes from several different financing companies.
Before You Apply
Before you apply for your mortgage, make sure that all accounts involved in your bankruptcy have been closed. You can request a copy of your credit report from the reporting agencies to check your information. You may also consider including a letter in your report explaining the circumstances of your bankruptcy. Some lenders will look more favorably on your account if illness or job loss affected your finances.
After Your Mortgage
Once you have purchased your home, plan on rebuilding your credit history by making regular payments. Within two years you may qualify for a conventional mortgage with low rates.
Feb 23
adminCheap Mortgages
During the past five years lenders have seen a boom in the demand for second mortgages as borrowers look to capitalise on the equity in their home. The low cost of borrowing coupled with the spiralling value of homes in the UK has led to a substantial strengthening of the equity position of many a homeowner. The equity position of some homeowners is in fact so strong that they now find themselves in the fortunate position of having more equity in their home than they have debts secured against their home on first mortgages and other loans.
Buoyed by the healthy state of positive property equity confidence is running high when it comes to homeowners committing to further borrowing. Many are taking the opportunity to secure second and even third charge loans against the equity in their property in order to release cash funds. Even the more conservative borrowers are now beginning to see the light, despite experts predicting of an imminent slowdown in the housing market.
If you’re thinking about releasing equity in your home through a second mortgage, here are some things you’ll need to consider before you take the plunge: -
Interest rates on second mortgages
The interest rates charged on second mortgages are often higher than those that are levied on first mortgages. This is because lenders see second mortgages as a higher risk than first mortgages and so compensate for this risk through fixing higher interest rates on second mortgages.
The increased risk factor on a second mortgage is down to the fact that these types of mortgages are a second charge on the property. That is to say that in the event of you defaulting on repayment to the point that your home is repossessed, the first mortgage lender legally gets first bite of the cherry when it comes to recovery of the loan. For second loans secured against the property, the lender has to wait its turn, running the risk that it may recover only part of the loan advanced or in some cases none of the loan advanced.
Lending criteria
Different lenders have different lending criteria for second charge mortgages. Whilst all lenders are likely to assess applicants for a second mortgage on the value of their home, their ability to repay the loan and their current income to debt ratio, not all lenders will give the same weight to these factors in the final analysis. This is why you may be rejected by one lender but accepted by another on an almost identical second mortgage offer.
Can you afford the repayments?
For a lender to be convinced that you are able to meet the repayments on a second mortgage, you’ll need to be sure how you’re going to repay the loan. You should never take on a second mortgage without first planning how you will pay the money back.
Different types of second charge mortgages
There are several different types of second charge mortgages to choose from. Be sure to get information on all your options and select the type of second mortgage that is most suitable for your circumstances. It is advisable to never borrow more than the current equity value in your home.
Jan 26
adminCheap Mortgages
More than 25% of homeowners are paying for their homes with an interest-only mortgage say the Abbey. The reason is obvious their monthly payments are much less. For example, a 125,000 interest only mortgage at an interest rate of 5% and repayable in 25 years time, costs 525 per month – but on a repayment basis the monthly cost rises by 210 to 735 per month.
Understandably, this level of cash saving has proved highly popular with first time buyers struggling to get the feet on the property ladder and others working on a tight monthly budget. But there’s a time bomb lurking. 37% of homeowners with interest only mortgages are failing to save any money for repaying the mortgage when the mortgage capital eventually becomes repayable at the end of the term.
The Financial Services Authority (FSA) is concerned about this problem so last year they ushered in new rules requiring lenders to seek evidence from new borrowers about the steps they’re taking to repay the capital. And it won’t be sufficient for the borrower to say that they intend to repay the mortgage by selling the property. From now on, the FSA is likely to judge any new mortgage that is granted as being miss-sold unless the application includes details of a verifiable repayment vehicle which is likely to generate sufficient to repay the mortgage. And, if the figures don’t stack up, the lender will be in hot water with the FSA.
The ideal type of repayment vehicle they will be looking for will be an existing personal equity plan (PEP) or an Individual Savings Account (ISA). Even the 25% tax-free cash from a personal pension plan (PPP) will be acceptable. But borrowers will have to provide evidence to the lender that these financial arrangements are in position just saying you intend to do it won’t wash!
From reactions so far, we can see that individual lenders are interpreting the FSA’s rules in different ways. For example, take the Nationwide Building Society: their new rules say that you won’t qualify for an interest only mortgage if you plan to repay using an inheritance or are relying on future pay rises. Even if you intend to fund your repayment investment from bonuses rather than from regular income, you’ll still be required to show that the bonus scheme exists and that the expected level of savings from bonuses are realistic.
However, the Nationwide Building Society will agree an interest only mortgage if you aren’t a first time buyer, the mortgage you want is less than two thirds of the new property’s value and you have at least 150,000 of net equity in your existing property.
Lots of mortgage advisers seem to agree that interest only mortgages should only be used as a last resort when income is tight. That’s because whichever investment vehicle the borrower uses to repay the mortgage, the investment returns are never guaranteed and it could fail to deliver sufficient capital at the end of the term to fully repay the mortgage. This means there’s an element of risk involved. Therefore, many advisers prefer to be sure and recommend a repayment mortgage where there is absolutely no risk of a shortfall.(They may have in mind the desirability of avoiding any risk exposure within the advice they provide although this is covered by their professional indemnity insurance!)
Having said that, some advisers will acknowledge that an interest only mortgage can be useful if the borrower plans to simply shelter under the mortgage’s lower repayments as a temporary stop gap of say four or five years, and then switch to a repayment mortgage. Of course, the FSA will still expect the borrower to provide evidence to the lender that a suitable investment or savings plan is in place prior to the borrower releasing the interest only mortgage.
However, in our view, if advisers do recommend an interest only mortgage, they should recommend a scheme where the borrower can make penalty free overpayments. With such mortgages, the borrower is only committed to paying the monthly interest, but as and when spare capital becomes available, money can be paid in to reduce the outstanding mortgage. There are plenty of mortgages available like this. Most allow the borrower to repay at least 10% of capital each year, penalty free, but please check the details before you sign up for the mortgage.
Jan 05
adminCheap Mortgages
Many people make a major mistake when applying for a mortgage. They are so relieved to get the loan that they fail to pay attention to prepayment penalties in the loan documents.
Prepayment Penalties
With the refinance craze of the last few years, many borrowers have been surprised to find they are locked into their loan with prepayment penalties. Boiled down, these penalties require borrowers to pay fees if they pay off the loan prior to a certain point in time. By including such language in the loan documents, some lenders are trying to ensure they will recover a certain amount in interest on a loan as well as reach a certain maturity date on the loan. Lucky you.
Prepayment penalties come in a variety of forms. First and foremost, state law controls the amount and types of penalties that can be charged by a lender. Of course, this means each state has different laws and you should make sure you understand what can be done in yours.
As to the payments themselves, they typically come in two forms. The first is a percentage of the overall loan For instance, assume you have a 400,000 mortgage and the prepayment penalty is 3 percent. Your prepayment penalty will be 12,000. This is typically true even if you are selling your home because of financial difficulties.
In some states, prepayment penalties can come in the amount of interest to be charged over a period. Assume you are paying 2,000 a month in interest on your loan. The prepayment penalty may be something equal to 10 months of interest from the date of prepayment. Put another way, you are looking at a 20,000 prepayment penalty. Obviously, such a payment is going to be a dent in any profit you would pull from the home.
Lenders are not required to identify prepayment penalty language in loan documents. You absolutely must read your loan documents to make sure penalties arent included.
Prepayment penalties are not mandatory in loan documents. If a lender refuses to waive the penalties, make sure to shop around for a better deal. Dont get pounded on the back end of the loan.
Dec 15
adminCheap Mortgages
In the first three months of 2002, just 9% of all new mortgages were taken as interest only – but by the last quarter of 2005, the figure had risen to 23%. And amongst first time buyers, the figures rose from 6% to 15%. (Source: Council of Mortgage Lenders.)
The reason is obvious. It’s down to family economics. With an interest only mortgage, the monthly repayments only repay the ongoing interest so your monthly repayment is low. Repayment of the capital borrowed is delayed to the end of the mortgage when it has to be repaid as a lump sum.
So the popularity of interest only mortgages is a reflection of borrowers wanting to minimise their fixed monthly outgoings in order to preserve their lifestyle they still want their nice cars, nights out and holidays abroad. But their reluctance to cut back on their life style spending, combined with steadily rising house prices, could be storing up problems for the future. If they’re not repaying some of the capital now, how are they going to repay it?
Egged on by the concerns voiced by the Financial Services Authority (FSA), many lenders are now becoming much stricter when assessing an application for an interest only mortgage. They’re insisting that there’s a viable repayment vehicle in place before they’ll payout the money. These repayment vehicles could be the tax-free cash forecast from a pension policy, or an ISA or some other regular investment or savings scheme. The danger is that having got the mortgage, the borrower subsequently cancels their savings scheme.
If that were to happen, when retirement finally arrives accompanied by the looming commitment to repay the mortgage capital, they’ll be faced with having to sell their home and down size simply to free up money to repay the mortgage. And that’s a scenario that lenders and the FSA are anxious to avoid.
Twenty years ago interest only mortgages were the accepted norm with endowment policies being used as the most popular investment to repay the capital. But as we now know, returns on endowment policies have not been as high as many had assumed. This has left thousands of homeowners with a capital repayment shortfall. Endowment policies have certainly failed to be the guaranteed repayment solution that many of us had assumed twenty years ago. So, in today’s economic and investment environment, how certain can you be of any scheme to repay the capital?
When the shortcomings of endowment policies slowly became understood, interest only mortgages fell out of favour and repayment mortgages took over as the norm. But once again the pendulum is swinging. Interest only mortgages are back in a big way. It’s the result of high house prices and people straining to get onto and up the housing ladder without wanting to economise on other areas of their spending.
We’re sure that the pressures within family finances will continue to fuel the demand for interest only mortgages. However, it becomes the duty of mortgage brokers and the lenders to point out the alternatives open to their clients.
In the past, a 25 year mortgage term has been the norm for a young buyer. But now they can stretch the repayment period to 30, even 35 years. This makes the payments on a repayment mortgage far more affordable.
For example, the monthly repayments for a 125,000 repayment mortgage over 25 years at say, 4.9% cost 731.69 per month, but if the repayment period was stretched to 35 years, the repayment drops to 628.16 per month, a cash flow saving of 103.53.
The idea is that as and when family finances permit, borrowers can reduce the capital outstanding by making optional lump sum repayments. In practice, people tend to move house every eight to ten years and at each move a new mortgage has to be organised. These moves then represent an obvious opportunity to reassess long-term family finances.
But other solutions are available. You could arrange a mortgage where part of the loan is on a repayment basis with the balance on interest only. It’s a mid way option. At least these types of mortgage start the repayment process and later when you move home or the family income builds, you can take the opportunity to reassess the most suitable type of mortgage.
But please bear in mind that you shouldn’t speculate when it comes to your home finances. Mortgages are complicated and there is never just one solution. Our advice is take professional advice and use a mortgage broker who can search the entire market.
Dec 08
adminCheap Mortgages
Mortgages. First-Time Buyers Let Down By The Governments Homebuy Scheme.
Late last year, accompanied by the usual razzmatazz, Gordon Brown announced the Governments new Open Market Homebuy mortgage scheme for first-time buyers.
Under the Homebuy scheme, first time buyers take out a mortgage for 75% of a home’s value with no deposit and the Government and the mortgage lender will in practice buy the remaining 25% of the property. Then when the borrower eventually decides to sell the property, the borrower will receive 75% of the net sales proceeds and the remaining 25% of the sale price will go to the Government and the mortgage lender. In the mean time, if the owner wishes to buy out all, or part, of the Governments or mortgage lenders 25% interest, the borrower can simply repay the money the Government and mortgage lender initially put in.- there will be no penalty.
In our view, first time buyers shouldn’t become too excited about this scheme for six reasons: –
The Government has recently confirmed that buyers will have to pay a 1% premium on top of the usual mortgage rate.
There has been no announcement as to the amount relative to income, which borrowers can qualify for. So at this stage it’s impossible to judge what sort of house a first-timer could buy. However, we bet it’s a very small one!
Despite hopes that more mortgage lenders would join the Yorkshire Building Society, the Halifax, and the Nationwide, as co-sponsors of the scheme, no additional lenders have been added to the list.
The Government expects Homebuy to lend to 4,000 first time buyers per year. That’s only fractionally over 1% of the 361,000 first time house purchases arranged each year. In terms of availability, it seems as if Homebuy mortgages are going to challenge hens teeth!
The Government hasn’t even announced the rules under which a first time buyer can qualify to even apply for a Homebuy mortgage.
The scheme is not planned to be operational until October 2006.
So even if you’re happy to pay the 1% premium, your chances don’t look too good for qualifying for an Open Market Homebuy mortgage. Our advice is to forget about them and find a top class mortgage broker to seek out a great deal on the open market.
Signs that our reticence is shared amongst Members of Parliament came from a comment from Michael Grove, shadow housing minister. He is reported as telling the Sunday Telegraph that he wanted to see the Homebuy scheme made easier and cheaper for lenders in order to encourage greater participation from the mortgage providers. We think that’s fine, but participate in what? Until we know who can apply and how much they can borrow, the scheme means nothing.
Nov 17
adminCheap Mortgages
Interest Only Mortgages FSA Makes Move To Protect Homeowners
Abbey recently stated that over 25% of homeowners decide to take out an interest-only mortgage. It’s not hard to see why the monthly payments are significantly less, just look at this example based on a 25 year 125,000 mortgage at 5%. The interest only mortgage will cost 525 per month – but the repayment mortgage is 735 per month an additional 210 a month that’s a lot of money!
At the root of the issue are the first time buyers they simply can’t afford the repayment mortgage, so take the interest only option as an easier way out. However, the interest only mortgage must be accompanied by a suitable savings vehicle to cover the outstanding capital at the end of the mortgage term, and it is this that many are failing to do as many as 37% in fact.
Now the Financial Services Authority (FSA) has stepped in, concerned that many homeowners will face a shortfall at the end of their mortgage term. It is now necessary for lenders to see firm evidence from new borrowers that they have set up a savings vehicle to cover the capital. Previously, borrowers just had to state their intention, for example, they would sell the property to raise the capital. However, that will no longer be good enough. The lender will need to see a proper plan set up they are not allowed to set you up on an interest only mortgage without that proof. If they did, they would be going against regulations and would be penalised by the FSA.
The lender will now need to see proof of a personal equity plan (PEP), an Individual Savings Account (ISA), or evidence that 25% tax-free cash from a personal pension plan (PPP) will ultimately cover the outstanding capital. It will no longer be good enough to say that you will set it up you must show that you have already sorted it out!
In the short time that the new regulations have been in force, individual lenders are already making their own interpretations of the rules. The Nationwide Building Society is not allowing borrowers to use a future inheritance, or future pay rises as a basis on which to set up an interest only mortgage. Similarly, expected bonuses will not be good enough either, not unless you can prove that you will definitely be receiving them. Bonuses based on performance can’t be guaranteed, so would not count.
People that already have their own home will not be subjected to the same rigorous checks however. As long as you are borrowing less than two thirds of the new property’s value, and you have 150,000 of net equity in your current home, then Nationwide will accept you as a customer.
On the whole, mortgage advisers will not recommend interest only mortgages, agreeing that they represent too much risk. Repayment mortgages guarantee that all monies owed are paid at the end of the term, but a separate savings vehicle could fail to live up to expectations, and you could end up with a shortfall. Most mortgage advisers will recommend a repayment mortgage to bypass that risk.
On the other hand, the interest only mortgage is a useful short term solution, and if you can assure your mortgage adviser that you intend to switch over to a repayment mortgage as soon as you can afford to, they may well support your decision. Even in this case however, you will still need to provide the same details as if you were intending to stick with it for the full term. You simply won’t be able to get an interest only mortgage without providing the right paperwork.
The best all round solution is to get an interest only mortgage that allows you to overpay. So if you find that you have some extra capital, you can put it onto your mortgage, and reduce the capital. These types of mortgage are widely available, and many allow you to repay 10% or more in a single year. Of course, if you can’t afford it, then you don’t have to at least you have the choice. Just make sure, before signing up, that you can overpay without penalty.
Oct 27
adminCheap Mortgages
A popular method of borrowing against your home is the reverse mortgage. The reverse mortgage is becoming increasingly popular among senior citizens who wish to pay off their debts and increase their retirement income. It is expected that as the Baby Boom generation moves towards retirement, use of the reverse mortgage will become more and more frequent.
Reverse mortgages differ from a traditional mortgage in that there are no monthly payments.
The funds can be paid out as a monthly income, taken as a lump sum or withdrawn as needed. Interest is charged each month and deducted from the home equity balance.
The most common reverse mortgage is the federally insured Home Equity Conversion Mortgage. This mortgage guarantees a retiree can remain in his or her home until he or she passes away or moves out. Any remaining equity in the home is the retiree’s or his or her heirs. The lender gets none.
One advantage of reverse mortgages is that your ability to obtain one is not tied to your income. In fact, you can get one without any income at all!
You must, however, repay the loan upon your death or when the home is sold.
Reverse mortgages are not without their drawbacks, and they are not for everyone. While interest rates are comparable to conventional mortgages, there are high startup fees. Part of this is to insure the loan, which tends to be riskier than conventional mortgages, as the borrowers must be at least 62 years of age.
In addition, as the reverse mortgage draws upon the equity of the home, you could find yourself with no equity remaining if the value of your home should drop over time.
Reverse mortgages may become more popular in Texas and reverse mortgages will soon allow line of credit paymentsThose seeking a reverse mortgage or home equity loan in Texas were long disappointed, as Texas was one of the last states to allow such lending. Mortgage laws dating to the nineteenth century prohibited such lending, as the states founders feared that lenders would take advantage of people and intentionally seize their homes through foreclosure. This made it virtually impossible for Texans to use their home equity for purposes of debt consolidation, home improvement, or other legitimate uses, as citizens of other states may do.In 1997, the Texas legislature finally amended the state constitution to allow home equity loans, but did so in an awkward, poorly worded way that left many questions unanswered. The new laws did allow for traditional term loans and lines of credit for home equity loans, and also allowed for lump sum payouts for reverse mortgages. The law did not allow for a line of credit for reverse mortgages, however, and that has created a problem.A reverse mortgage allows homeowners who are at least 62 years of age to borrow against the equity of their home by agreeing to pay back the money when the homeowner dies, sells the home, or moves. Reverse mortgages have been quite popular in recent years, particularly in areas such as California, where high real estate prices have left many homeowners short of cash but equity rich. These people have been able to fund their retirements using the equity in their homes, purchasing vacation homes, recreational vehicles, or taking long-desired vacations. Nationally, nearly 90% of those who take out a reverse mortgage do so by utilizing a line of credit. This allows them to use the money when and how they see fit, and no interest accrues unless the money is actually used. Its a very convenient product, and it costs the homeowner much less in interest than a lump sum payment. Unfortunately for citizens of Texas, a lump sum payment is the only option, and as a result, very few reverse mortgages have been offered to date.This may soon change, however. The Texas Legislature has recently approved an amendment to the state constitution that will allow homeowners who take out a reverse mortgage to accept payment in the form of a line of credit. Texas law requires that this change be placed on the ballot for a referendum, and it is expected to be voted upon this fall. Those who work in the lending industry expect the vote to pass, and say that it will lead to a tremendous increase in the number of reverse mortgages offered in the state. With more than twenty million people, Texas ranks second only to California in population, and there are many people in Texas who would qualify for a reverse mortgage.By eliminating laws that have been on the books for more than one hundred and fifty years, Texas may soon join the rest of the states in having fair and equitable home lending laws.This might be of interest to those concerned about California adjustable pay mortgagemastersonline.com and that is why we have included this information.
Oct 20
adminCheap Mortgages
When applying for a mortgage, the amount of documentation required by mortgage providers from borrowers can vary widely. Depending on the mortgage, you could be required to provide full documentation or no documentation or something in between. With the latter category, the mortgage company simply relies upon your credit score and your credit history to determine if you qualify for a loan.
Concerning a full documentation mortage, you will be required to provide the following information about your personal finances:
*Your most recent pay stubs — the last two or three, typically.
*W-2 forms from the last two tax years.
*Bank statements for the past 2 or 3 months, i.e. checking, savings, etc.
*IRA, 401(k), SEP statements going back as long as 6 months to one year. Quarterly statements are generally acceptable.
Some sub prime lenders [these are mortgage providers who give loans to people who do not qualify for loans from mainstream lenders due to low credit scores] simply allow borrowers to submit bank statements for the past 1-2 years in place of W2 forms and pay stubs. Typically, their loan rates are much higher than they would be with a traditional lender.
Always, your mortgage provider will give you a check off list of documents needed. By following the list closely, you can assure that your loan is processed quickly and accurately.
Aug 25
adminCheap Mortgages
Interest Only Mortgages
Interest Only Mortgage is a means to payback a certain mortgage. On availment of interest-only mortgage, monthly amortization does not include any partial payment of the loan. The borrower has to pay only the fixed monthly interest of the loan. The principal amount of the loan is payable at one time and based on borrowers and lenders terms of agreement.
In Interest only mortgage, it is a must to determine how the loan payment should be made. Most borrowers are advice before engaging in this Mortgage to at least save consistently. The purpose of savings is to allow the borrower to come up with a lump sum to pay off the principal obligation. The completion of savings must also be made available before the maturity of terms of mortgage arrives.
Another option a borrower may do to effectively secure the mortgage is to make a conversion to a repayment mortgage. It is ideal for the type of a borrower who does not have big income at the time of engagement to the mortgage but expect an increase on the future income. By means of interest only mortgage the borrowers can enjoy low monthly payments. And when financial condition of the borrower increases, he may pay higher monthly payments for the repayment of mortgage.
Interest only mortgage are usually recommended by lenders and brokers but future borrower should be aware that interest only mortgage is beneficial only to particular type of person. Ideally interest only mortgage are good for workers who earn based on commissions or who expect high earnings in the coming year. Investors who expect big return of investment may also effectively acquire this type of mortgage.
Financial experts advise regular wage earners who opt to choose moderate size home loan not to apply for interest only mortgage. A borrower who cannot make a good plan for investing their savings is likewise not ideal for interest only mortgage.
Repayment Mortgages
Repayment Mortgage is a way of paying a mortgage wherein monthly repayments comprises of repaying the principal amount of obligation including the accrued interest. In simple terms, the borrower has to pay monthly part capital and part-interest. In repayment mortgage, at the end of the mortgage the full amount of the debt obligation will be repaid.
During early years of paying, the charges of the mortgage repayments consist mostly of the interest and because of this, less of the capital is actually paid off.
To determine the applicability of this type of mortgage to a person in need, the borrower must assure repayment of the full amount of the loan at the expiration of the term. The borrower must also consider that interest rate are subject to increases and will also affect the monthly payment premiums.
In repayment of mortgage, the borrower may ask the lender to extend the term of payment in case he is unable to pay the amortization or to allow interest only payments until the borrower can update the payment. This request for changes on the terms will increase the full principal obligation of the loan. But nevertheless, the same must be approved by the lender.
Most lenders provide flexible repayment mortgages to allow the borrowers to pay more than the required monthly premiums when their financial capacity improves. Holiday payments are also given to borrowers when they cannot meet the monthly dues.
Ideally, repayment mortgage is the efficient way to pay off the loan. When the mortgage value reduces, the amount of interest payable is likewise decreases. Hence, after few years of paying your dues the monthly repayment will now consist of an increasing amount of capital and a decreasing amount of interest. Tax relief will likewise decrease. This means that the borrowers will unlikely experience negative equity because the mortgage prevailing balance will also reduce. In the long run, the high equity percentages of the borrower’s property will also increases.
Reverse Mortgages
A Reverse Mortgage is a loan that enables homeowners to convert part of the equity of their home into a tax-free income. In this type of mortgage, homeowners do not have to sell their homes, give up the title, or take on a new monthly mortgage payment. It is termed as reverse mortgage because instead of making monthly payments to a lender as with a regular mortgage, the lender is the one that makes payments to the homeowners.
But not all can avail a reverse mortgage. In order to qualify in this mortgage, the homeowner must be at least 62 years of age. The older the applicant, the higher the loan amount can be. Also, the home to be subjected in reverse mortgage must be the applicant’s principal residence, meaning the applicant is currently residing in that particular house for more than half a year.
Elderly homeowners often use reverse mortgage as an additional source of income since most of them are already retired. Payment proceeds from a reverse mortgage can be also used to pay for the applicant’s health care, home repair or modification, paying off existing debts, taking a vacation and paying property taxes or just get some cash in case of emergencies.
The amount of cash one can have depends on several factors like the age of the home, its value, age at the time of closing, and interest rates. The qualified applicant may choose to receive the money from a reverse mortgage all at once as a lump sum, as a line of credit, fixed monthly payments or a combination of both.
The lump sum is the cash paid to you on the first day of the loan as immediate cash. A line of credit lets you take cash advances whenever you want during the life of the loan and until you use it all up. The mortgage becomes due once the home is passed on to the heirs. The heirs then, had an option to pay the mortgage and keep the home or sell the home and pay off the mortgage. They can keep any excess sales proceeds. The homeowner can never owe more than the value of the home in which time the loan is repaid.
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