By: Cornie Herring

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With people living longer and longer, funding retirement can become a stressful situation. Reverse mortgages can help home owners avoid worries about cash flow.

Reverse Mortgages

Reverse mortgages are essentially a method for turning the equity in your home into cash. Although there are various options, a typical reverse mortgage will provide you with a lump sum, monthly payments or a credit line based on the equity in your home. The mortgage will have a term of a certain number of years. Instead of making payments on the loan, the bank will become the owner of the percentage of your equity applied for the loan at the end of the term.

Reverse mortgages are only available to older applicants. Every person listed on the deed of the home must be 62 years of age or older. You must also use the home as your primary residence.

The decision to pursue a reverse mortgage can be a tricky one. The biggest issue is an emotional one. We are all mentally trained to buy a home and try to build equity over the years. With a reverse mortgage, we are making the mental leap to actually reduce the equity in our homes. While this may sound like a sensible method for using the nest egg equity, it makes you, me and everyone very nervous.

For some seniors, the reverse mortgage decision makes sense while it doesn’t for others. To limit the potential for problems and scams, banks are required to have senior applicants meet with unbiased third parties to determine the benefits and downside of using reverse mortgages.

If you or your parents have reached retirement age and are facing cash flow problems, you need to become flexible in dealing with finances. Reverse mortgages may be one flexible option that makes sense for your particular situation. After all, you can’t take the equity in a home with you.

By: Sergio Haros

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If you are in the market to purchase a home and you need a mortgage, there are certain mortgages that will make your purchase the best investment you have ever made, but there are other types of mortgages lenders promote that are to be avoided.

Interest Only Mortgages have been around for a long time; for a short term loan, such as a construction loan while your property is being renovated, there is nothing wrong with them. However to get into a longer term mortgage where only the interest is being paid disallows for any value increase in the property. Even the small amount of principal that is reduced during the early years of the loan are more beneficial than owing the entire amount after making payment on the interest alone.

Adjustable Rate Mortgage (ARM) with an Option that allows you to skip a monthly payment if you are short can be problematic  The monthly payment that you missed is then added onto the back of the loan and you end up paying interest on your interest, since that is where most of the monthly payment goes to in the first few years.

Balloon Mortgages are dangerous for the simple reason that no contingency or arrangement can be made for the future that takes into consideration all of the problems inherent in nature of loans – primarily the economy, but more closer to home is the fact that such a loan requires a full payment at the end of the balloon term, often 5 years, at which time the borrower may not have the ability to secure fixed financing.

Piggyback Loans are used occasionally when the borrower does not have enough down payment and cannot afford the PMI (private mortgage insurance) required on a conventional loan with less than 20% down payment. To make up the difference, a second loan is taken out that reduces the amount of the first. By reducing the first to an 80% LTV (loan to value) PMI would not be required.  This type of loan caused many foreclosures during the most recent housing crises.

The more astute borrowers know these and many other details concerning mortgages and thereby prevent dangerous financial undertakings that for those less informed lead to catastrophe.

By: Arianne Galbraith

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There are many different types of mortgages to fulfill various needs that one might have. Most lenders should be able to detect which type of mortgage is best for you: the one which will fulfill your needs, but is also affordable based on your credit. Then the lender will show you the various types of mortgages. Here are four main mortgage kinds, including fixed, adjustable, 1-yr treasury adjustable, and intermediate adjustable rate.

Fixed-Rate Mortgage

A fixed mortgage has an interest rate that does not vary when the rates fluctuate. Fixed rates are fixed for an agreed amount of time. They are nice because you always know exactly how much your monthly bill will be. You will never be guessing whether or not the interest rates are going up or down and by how much. On the other hand, fixed-interest rates will not go down as interest rates drop. If the rates do drop enough, you are able to refinance the mortgage loan. Overall, fixed-rate mortgages are the more conservative mortgage types.

Adjustable-Rate Mortgage (ARM)

Adjustable-rate mortgages vary along with an indexed rate and a set margin. There are limits to the minimum and maximum rates that the rate can adjust to called rate caps. Adjustable-rates are lower than fixed-rates at the time of the loan. These are very common among buyers who are: not planning on staying in a house for long; are in a market where houses are appreciating rapidly; or are planning on refinancing. The problem is that the rates do adjust and one should always expect the worst – that interest rates will increase not decrease. With adjustable-rates, people are trying to start off with low rates that will make up for the higher rates that are bound to come. While doing preliminary research, you should check out the frequency of the adjustments. The more frequent, the lower the initial rate will be, but the more unpredictable the fluctuations will be. The less frequent, the higher the initial rate will be, but it will also be more predictable. It is important to understand how much you could possibly be paying and how much you can afford.

1-yr. Treasury ARM

The 1-yr. treasury adjustable-rate loan is a fixed-rate for the first year, after that it becomes an adjustable rate. The new rate is ultimately determined by the treasury average index plus the loan margin. This rate is usually given out for a term of 30 years. The benefit of this mortgage is that the rates are usually lower than fixed rates and you will pay less when interest rates go down. It is important to keep track of the margin, which is added to the index to make up the new adjusted rate. It is possible to end up paying more than you would for a fixed-rate if the index increases enough.

Intermediate ARM

The intermediate ARM is fixed, and then adjusts by a predetermined schedule. Commonly, the rates are fixed for three years and then adjustable for one. The new rate is based on an economic index plus the loan margin. These mortgage loans are usually given for 30-year term limits. A pro is that the rates are lower than fixed rates; as interest rates increase, you tend to see more ARMs because they are easy to qualify for. The problem with this loan, as it is with all ARMs, is that once the initial period is over, the loan will adjust – most of the time to a higher interest rate.

By: Robert Melkonyan

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By: Ann Gibson

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