June 2010 Archives
Reverse Mortgage A Seniors Financial Tool
Reverse mortgage is a financial tool for retiree homeowners living in their twilight years to carry on with life without having to worry about their daily expenses. But some prefer to see this as an opportunity to maximize a dream lifestyle of their choice. It is a method of acquiring cash from their home equity.
By using this type of borrowing method senior citizens can come up with money that they can use any way they want without the need to pay it back during their lifetime. If these elderly Americans can qualify they can turn their home equity into money.
The purpose of a reverse mortgage is to allow senior citizens the opportunity to receive the extra cash they require without the necessity of having to sell their house. The cash they get can provide them with the additional financial security they require and also give them a chance at enjoying their remaining years by reducing their money worries. There are several ways to receive this money including regular monthly payments, a lump sum or even as a credit line. A line of credit is the most common method people use to receive money from a reverse mortgage. Some retired persons get their money by using a combination of these methods. It’s possible to receive monthly payments while also getting a big chunk of money up front too.
The term reverse mortgage is a simple way of “reversing” a mortgage. Rather than being forced to make monthly payments by taking out a home loan people can actually receive monthly payments themselves. It’s a method for retired homeowners to increase their comfort of living by taking advantage of the equity they have built up in their home. The loan amount depends on many factors including the value of their residence, how old they are, how much equity is in the home along with other factors.
To qualify for a reverse mortgage the applicant must be 62 years of age or older. They must also own a home (single family residence), manufactured home built on or after June 1976, town home or condominium. And of course they must have a certain amount of home equity. It is not necessary to have the house paid off completely, but there must be equity in it. In other words you can still qualify for a reverse mortgage even if you have an outstanding mortgage loan.
The loan cannot exceed the home’s value, but there are no monthly income requirements and no medical prerequisites for qualification. There are few requirements, one of which is that the applicant must first meet with an approved counselor to discuss the loan or other possible options for their situation. Other than that there are very few requirements.
There are no monthly income requirements and no medical prerequisites for qualifications but with one condition that the loan cannot exceed the value of the property. Before approval of any reverse mortgage loans, it is required that the applicant must first meet with an approved counselor to discuss other possible options before taking up a reverse mortgage. Other than that there are very few requirements for its eligibility.
Ready to Trade-In Your Home? Perhaps You Should Remodel Instead!
Ready to Trade-In Your Home? Perhaps You Should Remodel Instead!
Moving:
A good local real estate agent should be able to assist you with estimates on these numbers.
How much will it cost to purchase a home that will meet your needs?
How much could you sell your existing home for? Don’t forget to subtract the agent’s commission from this total.
What will it cost to move? According to real estate consultant and best-selling author of Remodel or Move, Dan Fritschen, a typical move costs 10% of the value of your home.
How much will your property taxes increase as a result of the move?
Remodeling:
What projects do you want to have done and how much will they cost? An architect or general contractor will be able to assist you with these figures.
How much will the improvements add to the value of your home, also known as the “payback”? A local real estate agent can assist with this as well.
If the decision about whether to renovate or move were purely a financial one, then it would be quite easy to look at the numbers and come to the right conclusion. However, there are also emotional factors that come into play, and they have a value as well. Let’s consider some examples.
Reasons you may want to move:
If you relocate to a new neighborhood, your children could attend superior schools.
You would like to reduce your commute or have better access to local amenities, such as restaurants and shopping.
You’re not particularly fond of your current neighborhood.
Your yard is too small, and you cannot expand it.
Reasons you may want to stay and remodel:
You’re happy with your location. It’s convenient, you love your neighbors, and the schools are either excellent or are not a factor.
You love the layout of your home.
All you need is a little more space, and your home will be perfect.
Of course only you know what is truly important for your happiness, so try to use these questions as a starting point. Create a list of the pros and cons of each scenario and leave it someplace accessible, so that you and your spouse can add to it as you think of additional factors. You may also want to consider attending open houses and visiting new housing developments to see what is available and how your home compares.
Once you’ve completed your list and your financial assessment, it’s time to draw some conclusions. Are the numbers and the emotional factors pointing you in a clear direction? If you’re still feeling unsure and would like some additional assistance, you may want to read Dan Fritschen’s book, Remodel or Move, or visit his website. Both contain a calculator that will assist you with the difficult task of quantifying the ramifications of your decision. In addition, you can learn tips to assist you with the next step, after you’ve determined what it will be.
If you choose to remodel, then you’ll need to have a clear idea of what you want to accomplish before finalizing any details with the contractor or architect. One of the most expensive things you can do is change the project midstream.
If you decide to move, then there are low-cost improvements you can make to your existing home that will help it to sell more quickly. The kitchen and the bathrooms provide the biggest return on investment in this area.
Whether you decide to remodel or buy a new home, it’s important to ensure that you have proper financing in place prior to moving forward. If you decide to purchase a home, a mortgage originator will help you to determine how much you can afford, as well as which loan package works best with your overall financial plan. In the case of remodeling, you should meet with a mortgage professional before any construction takes place. Otherwise you may severely limit the type of financing options available to you.
Qualifying for a Reverse Mortgage
To qualify for a reverse mortgage, you must be at least 62 and have paid off all or most of your home mortgage. Income is usually not a factor, and no medical tests or medical histories are required. If you seek an HECM, you also must undergo mortgage counseling from a government-approved “housing agency.” Other financial institutions offering proprietary reverse mortgages require similar counseling or homeowner education.
Your age becomes the major deciding factor of how much you can borrow. Apart from that the value of your home, and the current interest rate are also considered. If it’s an HECM reverse mortgage, the federal law limits the maximum amount that can be paid out.You can be paid in cash on a lump sum, in monthly instalments, over a line of credit, or a combination of all three.
Common Features
Reverse mortgages offer special appeal to older adults because the loan advances, which are not taxable and do not affect Social Security or Medicare benefits. Depending on the plan, reverse mortgages allow homeowners to retain title to their homes until they permanently move, sell their home, die, or reach the end of a pre-selected loan term. Basically, a move is considered permanent when the homeowner has not lived in the home for 12 consecutive months. So, for example, a person could live in a nursing home or other medical facility for up to 12 months before the reverse mortgage would be due.
Here are some points you have to take note:
Reverse mortgages tend to be more costly than traditional loans because they are rising-debt loans. The interest is added to the principal loan balance every end of the month. In other words – compounded interests.
Reverse mortgages uses up a good portion or all of the equity in a home which will at the end of the day eaves fewer assets for the homeowner and his or her heirs.
Lenders will charge origination fees and closing costs; some charge servicing fees which can vary from one lender to another.
Interest on is not deductible on income tax returns until the loan is paid off in part or whole for reverse mortgages.
Because homeowners retain title to their home, they are still responsible for taxes, insurance, fuel, maintenance, and other housing expenses in regard to that property.