Reverse Mortgages
A Reverse Mortgage is a type of home equity loan that allows you to convert some of the equity in your home into cash while you retain home ownership. A Reverse Mortgage works much like traditional mortgages, only in reverse. Instead of making a monthly payment to your lender, the lender pays you. You do not make any payments on your reverse equity loan when you are in it. Funds obtained from a Reverse Mortgage may be used for any purpose such as home improvement, vacation, a new car, or savings.
To qualify for an Reverse Mortgage, you must own your home. The Reverse Mortgage funds may be paid to you in a lump sum, in monthly advances, through a line-of-credit, or in a combination of the three, depending on the type of Reverse Mortgage and the lender. The amount you are eligible to borrow generally is based on your age, the equity in your home, and the interest rate you qualify for.
Because you retain title to your home with a Reverse Mortgage, you also remain responsible for taxes, repairs, and maintenance. Depending on the plan you select, your Reverse Mortgage becomes due with interest either when you permanently move, sell your home, die, or reach the end of the pre-selected loan term. The lender does not take title to your home when you die, but your heirs must pay off the loan. The debt is usually repaid by refinancing the loan into a forward mortgage (if the heirs are eligible) or by using the proceeds from the sale of your home.
- No payments are required as long as you live in your home.
- Income received from your Reverse Mortgage is usually tax-exempt (consult your tax advisor) and does not affect regular Social Security or Medicare benefits, but may affect eligibility for other types of government assistance.
- You retain ownership of your home.
- You can use the proceeds to pay off an existing mortgage and eliminate your monthly mortgage payments.
- Reverse Mortgages provide you with a source of income that can be used to improve your standard of living and maintain your independence.
How to Compare Mortgage Rates?
Comparing mortgage rates is a difficult task. This is mainly because mortgage packages involve so much more than just interest rates. Depending on the lender, mortgage rates can contain a quoted rate, closing costs, commissions, transaction fees and points systems. In this section, we take a look at some important factors to consider when comparing potential mortgage rates.
The first thing you need to do when comparing mortgage rates is to be aware of the different rates that are currently popular in the market. Some of the most common mortgage rates include discounted rate mortgages, fixed rate mortgages (FRM), adjusted rate mortgages (ARM), tracker rate mortgages, and capped rate mortgages.
When you compare mortgage rates, you need to consider the closing cost, which may include loan related fees, government recording, and escrow charges as well as other charges depending on the lender. If you aren’t careful, these hidden fees can add up to $1000 to the entire cost of your loan!
You should also investigate loan features such as mortgage insurance (if applicable), LTV, qualifying ratios, reserve requirements and so on. You need to give some special attention to prepayment penalties that might be involved, rate reduction options and conversion options, such as moving from fixed rate mortgages to adjusted rate mortgages, as these features could end up saving or costing you a lot of money.
The lock-in period is another important variable to consider when comparing mortgage rates. The lock-in period is the length of time that the initial points and interest rate quoted to you are guaranteed. There are lenders who guarantee a lock-in period for a very short period of time, some as short as 15 days, while the more customary offering is around 30, 45 or 60 days. The lock-in period should be long enough for you to negotiate the settlement before it expires.
These are just a few things that you should consider when comparing mortgage rates. Weigh them carefully, and you’ll be sure to end up with the best mortgage deal for you. If you have questions, however, don’t hesitate to take them to your mortgage broker before purchasing. When it comes to taking out a mortgage, it’s much better to be safe than sorry.
