Entries Tagged 'Mortgage' ↓

What Is A Reverse Mortgage And What Are Its Benefits?

More and more senior citizens are turning to reverse mortgages. The continually escalating home values and growing consumer acceptance have fueled the growth of reverse mortgages by 77 percent. According to the most recent federal fiscal year data, reverse mortgages have increased to 76,351 from 43,131 the prior year. For the uninformed, this data is a revelation. But the reverse mortgage and the benefits it offers have been enjoyed by retirees for quite some time now.

The reverse mortgage is a special home loan targeted specifically to homeowners aged 62 and above. This loan enables retirees to borrow against the equity in their home to receive cash without having to sell it, make new monthly mortgage payments or surrender the title of their property. With reverse mortgages, borrowers receive money from the lender and generally don’t have to repay it for as long as they live in their homes.

To qualify for most reverse mortgages, borrowers must be at least 62 and currently live in their home. The loan amount borrowers are entitled to is dependent on the borrower’s age, current interest rates and the home’s location and value. Borrowers may use the loan proceeds for any purpose. The proceeds can be taken out as a lump sum, fixed monthly payments, line of credit (where allowed), or a combination. In addition, the home does not have to be owned free and clear to qualify for a reverse mortgage.

The three basic types of reverse mortgage are: the single-purpose reverse mortgages, offered by some government agencies and nonprofit groups; the Home Equity Conversion Mortgages (HECMs), federally-insured loans backed by the U. S. Department of Housing and Urban Development (HUD); and proprietary reverse mortgages, private loans backed by the companies that develop them.

Reverse mortgages offer many benefits:

• Many reverse mortgages have no income restriction requirements.
• Reverse mortgage loan advances are not taxable, and usually do not affect Social Security or Medicare benefits.
• Borrowers can continue receiving tax-free income as long as they remain in their home.
• Unlike traditional home equity loans or second mortgages, reverse mortgages do not require repayment until the borrower permanently moves out of the home, sells the house, or dies.
• Reverse mortgage lenders can only require a home’s value for repayment (both homeowner and lender are insured against loss).
• Reverse mortgages can help homeowners who are house-rich but cash-poor stay in their homes and still meet their financial obligations.
• All reverse mortgages are non-recourse home loans. This means that there is no personal liability to the borrowers or to the heirs.
• With reverse mortgages borrowers can never ever be forced from their homes.

Homeowners considering reverse mortgages should shop around and compare options and terms. They should also seek out counseling services from certified housing counselors before they choose a lender. By being informed on the ins and outs of reverse mortgages, homeowners stand a better chance of getting a good deal.

Home Mortgage Loans for People with Bad Credit

Recently, a rising number of lenders and mortgage brokers have started offering home mortgage loans to borrowers with bad credit, collectively known as ‘sub-prime borrowers’. In sub-prime mortgage lending, lenders grant mortgage loans to borrowers with less-than-perfect credit who may have been turned down by conventional lenders. The increasing offerings are driven by the profitability of the subprime industry, wherein people with poor credit records are charged higher interest rates for their mortgage loans.

While some subprime lenders operate independently, more and more mainstream lenders are running subprime mortgage lenders under various names. Although subprime lenders do not label themselves per se, the fact that they offer consistently higher rates than typical lenders is proof that they cater to people with less-than-stellar credit.

Subprime lenders do not automatically turn a mortgage loan application away just because of flaws in the customer’s credit history. They offer flexibility in the prerequisites that would-be borrowers need to meet. Some of the most common difficulties that hinder people from qualifying for a credit approval are less-than-perfect credit, having incomes that are hard to substantiate (i.e. work from home), having too much existing debt or loans, and bankruptcy or foreclosure.

For incomes that are hard to verify, subprime lenders offer home loans that do not require documentation for traditional income. Consumers with too much existing debt are offered flexible lending standards. For those with bad or less-than-perfect credit, there are loan programs that can compensate for the credit blemish. Usually, subprime lenders work out a plan that entails loans with terms and rates that cater to the need of the subprime borrower. And, even though a potential borrower had been in bankruptcy or had a foreclosure, he can still qualify for certain loan programs, on the condition that these issues get resolved before he signs the loan documents.

Subprime lenders work by offering home mortgage loans with rates and fees that are based on the same factors that mainstream lenders use. Higher rates, for instance, are applicable to consumers with lower credit score and loans with a small downpayment. With subprime lenders, the need to compensate for the bigger risk and the higher costs of subprime lending requires them to charge more for the overall loan structure. Also, mortgage loans tailored for people with bad credit have higher chances of going into default. Meanwhile, borrowers who don’t go into default have a greater tendency to prepay their loans early. Most subprime loans often have mandatory prepayment penalty clauses that penalize borrowers who prepay early.

While home mortgage loans for people with less-than-perfect credit are generally plentiful, consumers would do well to shop around for the best subprime lender who can offer reasonable rates and terms, plus the option of refinancing in the future once their credit score gets better.

What Is An Offset Mortgage?

Borrowers who would like to pay off their mortgage early can do so with an offset mortgage. It is one of the newest types of mortgages to become available. It is highly flexible and has many similarities to traditional mortgages.

The offset mortgage, which started in the United Kingdom in the late 90’s, is commonly used to purchase domestic property. The original idea began in Australia decades ago. Basically, when the mortgage interest is calculated, the balance of the borrower’s savings account is included and is offset against the debt. This means that interest is only charged on the total outstanding amount, resulting in decreased payments.

Offset mortgages are considered one of the easiest and most trouble-free types of loans. It gives borrowers a loan to buy their house and ingeniously connects it to their savings account. The concept is simple. Most mortgage borrowers also have savings. Whether the savings are big or small, these can be used to negate the borrower’s mortgage debt. In addition, they don’t have to pay taxes on interest their savings would otherwise have accrued. The idea is that as a customer’s savings account balance goes up, less is paid on the mortgage. As the balances go down, the payments go up.

Specifically, the arrangement entails giving borrowers no interest on their savings, and instead carrying the estimated amount that the borrowers would have been entitled to if the savings account had been a traditional account, it offset against the interest due on the loan. This method lets borrowers enjoy reduced monthly payments. Likewise, this method can also help to decrease the loan term as less money is spent on interest, leaving more available to pay down the principal.

Offset mortgages are also highly flexible. Borrowers can underpay or even withdraw money from the mortgage and subsequently make big overpayments with no additional charge. And because offset mortgage lenders calculate interest daily, the balance in the accounts will reduce the money owed, and in turn reduce the interest paid.

Offset mortgages are recommended for those who have significant savings in their current accounts, since these help pay off the mortgage loan faster. Those who have high incomes would also find offset mortgages a good option. On the other hand, these mortgages are not suitable for people who are not capable of managing their money effectively and those who are on a tight budget.

Used wisely, offset mortgages can save borrowers a significant amount of money. This is possible with the use of savings to pay off the mortgage faster, efficiently lowering the interest paid, as well as enjoying tax-free savings.

While the offset mortgage is a fairly new product, more and more mortgage lenders are offering offset packages. This means that the rates and terms offered for offset mortgages are becoming more cutthroat. By shopping around for the best lender, consumers can find a great offset mortgage that best suits their needs.