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Should You Consider A Reverse Home Mortgage?

In recent years many persons nearing or past retirement are considering reverse home mortgage loans. The reverse home mortgage loans industry is booming due to all the baby boomers starting to retire. To be eligible for a reverse home mortgage loan you must be 62 years or older. Reverse mortgages allow homeowners who at least 62 years old to take a loan using part of the equity of their homes as collateral, thus converting the equity into cash without having to sell their homes.

This type of loan is made to those that are retired so that they can live without worry. You do not have to make a single payment in your lifetime as long as you do not sell the house.

Why should you consider a reverse mortgage?

If you are approaching retirement and need to add some money to your retirement account, then this is a great way to do so. You can get a larger home mortgage loan than most younger people because you have owned your home longer and this usually means that the home is worth more. Plus they will usually let you take out close to 100% of the value of your home.

Your house has to be fully owned or only have one debt attached to it like a first mortgage. Sometimes you can get approved if you have a second mortgage as well, but all these debts have to be paid off with your equity before most companies will loan you money against the house as cash out.

Essential features of a reverse home mortgage

The cost of a reverse home mortgage loan will most likely include financing fees. If you have a home worth $100,000 and you do not owe any money on it you will probably only get between $90,000 and $95,000 because the mortgage company has to make money and they do so by charging you a fee for the loan.

Although you do not have to make any payments you still have to carry homeowners insurance, maintain the property, pay your property taxes, and make sure you do nothing fraudulent or the lender can force you to have to pay the loan back. Other than that there are no worries because the home will pay for the loan once it is vacated.

If you decide to sell the property and move into a different place or possibly an assisted living facility, the mortgage company will sell your home in order to pay off the loan and you don’t have to worry about anything. This can be a huge benefit because you can use your home equity to help fund your retirement right away without having to worry about that huge mortgage payment.

Generally, the homeowners after receiving the amount from the lender will not have to pay as long as he or she lives in his or her home. The loan is repaid once the house is sold generally after the homeowner dies or leaves the residence.

Reverse home mortgage loans are designed to help cash-poor older citizens who have substantial equity in their homes but do not fully own them yet. The proceeds are generally tax free and are not subject to income restrictions.

Avoiding pitfalls when considering a reverse home mortgage loan

While considering a reverse home mortgage loan you should be wary of certain pitfalls. By resorting to reverse mortgage, the homeowner should know that he or she might be giving up or spending the inheritance of his or her children.

While lenders seldom take possession of the property title upon approval and release of the loan, it is usually repaid by selling the loan after the death of the homeowner, leaving the children with no home to inherit.

The next of many reverse mortgage pitfalls are the charges. The homeowner incurs charges to avail of a reverse mortgage. Usually, there are initiation charges and appraisal, credit report, inspection and other fees which could total to more than a thousand dollars.

Still another of the many reverse mortgage pitfalls is the temptation of elderly homeowners to spend the sudden large cash flow from a reverse mortgage wisely. If not monitored properly, plenty of cash might go down the drain on unnecessary things rather than on essentials.

Exercising caution while selecting a reverse home mortgage provider

It always pays to be cautious when looking for reverse mortgage financial freedom because where there is something involving money and senior citizens there is someone trying to scam them out of their hard earned money. Make sure you use a reputable bank or lending company for your loan and if you are uneasy about the lender walk away and consult your attorney about who they might recommend.

12. Home Mortgage Rates And You

In the current economic climate home mortgage rates are in a period of flux especially in the United States. While it is still possible to find a low mortgage rate for a home, you will need to work a little harder than you would have a few months ago. It is important to determine which if any of the mortgage types and rates are appropriate for your particular home mortgage situation. Fortunately there is plenty of information available online, or you can visit a local lender in order to determine the best option. Panic buying is never the answer, so you should take time to research your path in advance.

Locking an interest rate with a fixed mortgage

The most typical home mortgage rates and packages until fairly recently, chronologically speaking, is the fixed mortgage. Commonly fixed mortgages are often 30 year mortgages, but they may also be 12 years terms, 15 year terms, 20 year terms, or other negotiated packages. The rate of interest will vary according to the term and the credit worthiness, but it does not change over the term of the loan.

Riding the interest wave with a variable rate mortgage

With recent falls in interest rates, this option has become very popular as more people dream of owning their homes faster. A variable mortgage has a set term which usually consists of a low introductory rate and a second phase in which the mortgage varies according to some preset index. An example is tying the mortgage rate to prime rate. The original period may be fairly short followed by a balloon payment.

Considering the balloon payment option

A balloon payment is one way to finance and maintain low home mortgage rates in order to ‘sell’ the mortgage to the lenders. The borrower agrees to have low or zero mortgage rates for a very short time with the expectation that they will pay a higher balloon payment in the near future. The expectation here is that the borrower’s income will increase before the balloon payment becomes due. This can be a risky type of home mortgage, but it also works well for people who are in certain types of financial situations. You are the best judge of whether or not to use the balloon mortgage type of loan arrangement.

Predicting a mortgage rate

Many people looking to purchase their dream home almost always look at mortgage rates predictions. It is however difficult to predict mortgage rates with a degree of accuracy. You have to remember that knowing what the predicted mortgage rates are not going to be the basis for you to buy your dream home. Looking for a home mortgage loan can be the biggest expense in your lifetime. So you need to understand and learn the many factors that affect your purchase. You will be better off if you would try and determine how much you can borrow.

No one can ever predict in certain terms what the mortgage rates are going to be a year or so from now. There are many factors to contend with in predicting where mortgage rates will go. There are calculations and statistical formulas as well as financial and economic factors that can influence the rise and fall of interest rate. So no one can tell you in absolute terms that they can make and accurate forecast as to what you will be looking at in terms of your mortgage rate.

How reliable are economists and experts?

Many experts and economist attempt to predict interest rates in the future. What they are trying to convey here is the short term or the long term rates possible trend. For instance, the short term trend will stable and the long term trend will be going up. Things like this are what they are basically trying to do.

With the constantly changing economic conditions that are affecting the entire world it makes it harder to make any forecast. These uncertainties that we are now facing can make even professionals as well as seasoned economists and bankers make unreliable forecasts. With governments and private sectors trying to wrestle with the collapsing financial institutions and preventing their collapse, it is more difficult to make any assumptions. Calculations and models used previously are not accurate enough to make traditional forecasts as to where mortgage rates are going.

Rather than trying to predict mortgage rates, it would be smarter to know how much you can borrow for a mortgage. Knowing how much you can afford to borrow would make more sense rather than concentrating on mortgage rates predictions. Determine your borrowing capacity, find out the best mortgage rate and work out your fortnightly or monthly repayments. You will then be able to determine whether your income sources will cover the repayments or whether you will have to seek better mortgage rates.