Pros, cons, benefits, disadvantages and pitfalls of reverse mortgages #amortization #table


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Pros and Cons, Benefits, Pitfalls and Disadvantages of Reverse Mortgages

People who are marketing reverse mortgages are really good at what they do. Just look at reverse mortgages now they are the hot trend in loans and getting some cash into the coffers of America s seniors .

While you may believe all the hype, common sense will tell you that just like all good things they have their pros and cons, advantages and disadvantages, benefits and pitfalls.

PROS, ADVANTAGES, BENEFITS

A reverse mortgage is another way that you can get some money from your own home. In the past, you had to sell your house or use it as collateral for a loan which had to be repaid in monthly installments.

Reversed mortgages. on the other hand, is a type of mortgage where the loan amount is not repaid as long as the homeowner is still living inside the house. The loan is only repaid when the borrowers dies or permanently moves out of the house, or if the house is sold. The lender pays out the loan in three ways: lump sum, monthly payouts, or line of credit. This in reality is a great pro and benefit for the elderly.

There are actually three types of reverse mortgages: (the least expensive) single purpose reverse mortgage, HECM or Home Equity Conversion Mortgages. and private proprietary reverse mortgages. The most popular programs are the HECM loans that are backed by HUD with FHA mortgage insurance.

Single purpose loans are the cheapest, but you can only use them for only one purpose, that can be either home repair or for paying off property taxes. If you seek low-cost mortgages that you can use for different purposes, HECMs are some of the least expensive ones you can find, partly because the american government insures them. Low prices on HECM programs can be added to the list of pros and benefits.

Reverse mortgages are a lot like wine: the older, you are the better. The older you are, the more money you can get. Seniors must be at least 62 years old and must own their home. Eligible homes in this case include single detached homes as well as HUD-approved condominiums and dwellings. Trailer homes do not qualify.

CONS, DISADVANTAGES, PITFALLS

If you re taking out an HECM reverse mortgage, you re required to talk to a counselor designated by the federal government. You will find out soon enough that if you aren t careful, reverse mortgages can negatively impact your finances. Your credit consultant should be sure to point out to you all the cons, disadvantages and pitfalls of reverse mortgage loans aloung with all the costs and fees. Having to talk to a credit adviser can seem like a great disadvantage but in the end it will serve as benefit and can be considered a check on your list of pros.

The federal government has quoted these disadvantages and pitfalls of reverse mortgages:
They can affect your eligibility for another type of loan.
This may affect the inheritance of the borrower s heirs.
The borrower could lose his or her eligibility for Medicaid and Supplementary Security Income (SSI).

What most people do not know is that Medicaid and SSI considers loan advances as cash assets or liquid assets when they are kept beyond the month that a recipient receives them. Borrowers may just find themselves ineligible for these State benefit programs.

There are many reasons why despite the above cons, disadvantages and pitfalls a senior citizen would still take out a reverse mortgage loan. The most common reason is to enable the borrower to pay for the cost of living or to maintain a lifestyle. Still, there are others who use reverse mortgages to plan their estate for the benefit of their heirs.


Pros, cons, benefits, disadvantages and pitfalls of reverse mortgages #mortgage #rates #graph


#reverse mortgage disadvantages

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Pros and Cons, Benefits, Pitfalls and Disadvantages of Reverse Mortgages

People who are marketing reverse mortgages are really good at what they do. Just look at reverse mortgages now they are the hot trend in loans and getting some cash into the coffers of America s seniors .

While you may believe all the hype, common sense will tell you that just like all good things they have their pros and cons, advantages and disadvantages, benefits and pitfalls.

PROS, ADVANTAGES, BENEFITS

A reverse mortgage is another way that you can get some money from your own home. In the past, you had to sell your house or use it as collateral for a loan which had to be repaid in monthly installments.

Reversed mortgages. on the other hand, is a type of mortgage where the loan amount is not repaid as long as the homeowner is still living inside the house. The loan is only repaid when the borrowers dies or permanently moves out of the house, or if the house is sold. The lender pays out the loan in three ways: lump sum, monthly payouts, or line of credit. This in reality is a great pro and benefit for the elderly.

There are actually three types of reverse mortgages: (the least expensive) single purpose reverse mortgage, HECM or Home Equity Conversion Mortgages. and private proprietary reverse mortgages. The most popular programs are the HECM loans that are backed by HUD with FHA mortgage insurance.

Single purpose loans are the cheapest, but you can only use them for only one purpose, that can be either home repair or for paying off property taxes. If you seek low-cost mortgages that you can use for different purposes, HECMs are some of the least expensive ones you can find, partly because the american government insures them. Low prices on HECM programs can be added to the list of pros and benefits.

Reverse mortgages are a lot like wine: the older, you are the better. The older you are, the more money you can get. Seniors must be at least 62 years old and must own their home. Eligible homes in this case include single detached homes as well as HUD-approved condominiums and dwellings. Trailer homes do not qualify.

CONS, DISADVANTAGES, PITFALLS

If you re taking out an HECM reverse mortgage, you re required to talk to a counselor designated by the federal government. You will find out soon enough that if you aren t careful, reverse mortgages can negatively impact your finances. Your credit consultant should be sure to point out to you all the cons, disadvantages and pitfalls of reverse mortgage loans aloung with all the costs and fees. Having to talk to a credit adviser can seem like a great disadvantage but in the end it will serve as benefit and can be considered a check on your list of pros.

The federal government has quoted these disadvantages and pitfalls of reverse mortgages:
They can affect your eligibility for another type of loan.
This may affect the inheritance of the borrower s heirs.
The borrower could lose his or her eligibility for Medicaid and Supplementary Security Income (SSI).

What most people do not know is that Medicaid and SSI considers loan advances as cash assets or liquid assets when they are kept beyond the month that a recipient receives them. Borrowers may just find themselves ineligible for these State benefit programs.

There are many reasons why despite the above cons, disadvantages and pitfalls a senior citizen would still take out a reverse mortgage loan. The most common reason is to enable the borrower to pay for the cost of living or to maintain a lifestyle. Still, there are others who use reverse mortgages to plan their estate for the benefit of their heirs.


Interest-Only Mortgage – Pros and Cons Interest-Only Mortgage #mortgage #calculator #with #amortization #table


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Interest-only mortgages

  • Make sure you understand the terms of an interest-only mortgage before you sign.

    How interest-only mortgages work
    When you take out a traditional mortgage, you pay the lender a monthly amount that s a blend of principal plus interest. The principal goes to repayment of the money you borrowed. The interest is what the financial institution charges for the use of the money.

    When you take out an interest-only mortgage, you pay only interest every month for a fixed period of time — usually the first five to 10 years. Then, depending on the term of your mortgage loan. you have 20 to 25 years to repay all of the principal, plus interest. You can pay money toward the principal during the interest-only period, but make sure your interest is recalculated on the new balance.

    An interest-only loan could be ideal for you if you want to keep your monthly payments low and are not concerned about falling home values. Refinancing with an interest-only mortgage is an idea you might want to consider if you are experiencing a temporary financial squeeze — if, for instance, you or your spouse has chosen to go back to school, or one of you has decided to take a few years off with your children. Paying only interest for a few years could help you to stay in your current home, even though you can t make your conventional mortgage payments for the time being. Of course, remember that you will only be paying interest during that time and not paying down the principal of the loan.

    Your payments rise later
    When you take out an interest-only mortgage, whether it s for the purchase of a new home or to refinance your current home, you must bear in mind that when the five- or 10-year interest-only period expires, your payments will increase. In fact, they will be much higher than if you had taken out a conventional mortgage. This is because you must now pay off the principal in a much shorter period of time.

    So before you opt for an interest-only mortgage, make sure that you will be able to afford the higher payments you will face in five to 10 years, or you will face refinancing — possibly at a higher interest rate — or selling your home.

    More affordable during the first few years than a conventional mortgage that charges both interest and principal.

    Leaves you no better off when the interest-only period expires than if you had rented for five or 10 years.

    May offer a lower initial monthly payment.

    Eventually requires you to repay the entire principal owing at an accelerated pace, with much higher monthly payments.

    Allows you to spend the money you save in the first few years on other priorities.

    You could go upside-down on your mortgage loan, if the house declines in value during the interest-only period of your loan.


  • Pros and cons: The 40-year mortgage #commercial #mortgage #broker


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    Pros and Cons: The 40-year Mortgage

  • As consumers evaluate the prices in today s real estate market, they re looking for traditional as well as alternative strategies to help them get into a home. One way to combat a challenging price tag is to apply an old strategy the 40-year-mortgage to current financing options. Not all lenders are offering a 40-year mortgage, but they re worth exploring.

    How a 40-year Mortgage Works

    As with today s more common 15, 20 and 30-year conventional mortgages. the amortization period of a four-decade mortgage is pegged to a fixed rate. Lenders can add a ten-year extension to a 30-year mortgage to help spread out and thus lower payments for consumers. There are lenders that also offer adjustable-rate mortgages (ARM) with a 40-year long repayment periods.

    The Pros of a 40-year Mortgage

    Mortgages with long terms can be especially attractive to people trying to rein in their monthly spending over a long period. The interest rates go up slightly on a long term mortgage, but lengthening out the repayment period and reducing the monthly out-go can make all the difference in whether the family can afford to own a home.

    For example, a homeowner facing a $200,000 mortgage would pay out $955 per month with a 4.0 percent 30-year loan. The same monthly payment on the home would drop to $851 per month, financed through a 40-year loan at 4.125 percent interest. The $104 per month saved can allow a family to qualify for a home (or a better home), free up cash for investing or help them pay off other debts. Buying a better property — skipping the starter home phase — lets people avoid the expenses and hassles of selling, buying again and moving.

    On the Downside

    The total amount of interest due on a long-term mortgage can be staggering if you had to pay it all back at once! The total interest paid with the 40-year loan is $208,708 — about $65,000 more than that of the 30-year loan.

    Another concern: Equity builds slower than homes financed under the terms for a 30-year mortgage on the same property. This can be a serious drawback for consumers who need to sell the property — they may not have enough equity to cover the costs of selling, especially if the market is not strong.

    Summing up

    Those who need monthly cash relief like first-time buyers may find that the 40-year mortgage is a good way to start. Remember, few homeowners ride out the length of their first mortgage. After enjoying the monthly payment rate a few years and raising their earnings, long-term mortgage holders can refinance to a shorter term. Investors with higher incomes may also choose this long-term mortgage if they use the property as their sole major tax deduction. A long-term mortgage can also aid in reducing rental property carrying costs. An interest-only mortgage, regular or hybrid ARM are other financing options for buyers who need to constrain monthly payments. The drawbacks include no equity-building performance with an interest-only loan or in the rising rates that can be applied to ARMs.


  • How Do FHA Loans Work? (Pros and Cons) #us #mortgage #rates


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    FHA Loan Basics

    Updated June 27, 2016

    Loans from the Federal Housing Administration (FHA) are popular options for borrowers because they allow you to buy a home with a relatively small down payment. Designed to promote home ownership, FHA loans make it easier for people to qualify for a mortgage. But they’re not for everybody, so it pays to understand how they work and when they work best

    What is an FHA Loan?

    An FHA loan is a home loan that is insured by the FHA.

    In other words, the offers a guarantee to your bank: if you fail to repay the mortgage, FHA will step up and repay the bank instead. Because of this guarantee, lenders are willing to make large mortgage loans in cases when they’d otherwise be unwilling approve loan applications The FHA, an agency of the United States government, has plenty of dough to deliver on that promise.

    Why are They so Great?

    FHA loans are not perfect, but they are a great fit in some situations. The main appeal is that they make it easy to buy property, but don’t forget that those benefits always come with tradeoffs. Here are some of the most attractive features:

    Down payment: FHA loans allow you to buy a home with a down payment as small as 3.5%. Other loan programs generally require a much larger down payment. If you have more than that, you might be better off making a larger down payment (be sure to look at the big picture).

    Other peoples’ money: it’s easier to use gifts for down payment and closing costs. In addition, sellers can pay up to 6% of the loan amount towards a buyer’s closing costs. You’re most likely to benefit from that in a buyer’s market, but those do come around from time to time.

    Assumable: a buyer can “take over” your FHA loan if it’s assumable. That means they’ll pick up where you left off – benefiting from lower interest costs (because you’ve already gone through the highest-interest years). Depending whether or not have changed by the time you sell, the buyer might also enjoy a low interest rate that’s unavailable elsewhere.

    A chance to reset: If you’ve recently come out of bankruptcy or foreclosure, it’s easier to get an FHA loan than a loan that does not come with any government guarantee (two or three years after financial hardship is enough to qualify with FHA).

    Home improvement: certain FHA loans can be used to pay for home improvement (through FHA 203k programs)

    Qualification: it’s easier to qualify for an FHA loan.

    How do you Qualify for an FHA Loan?

    The FHA makes it relatively easy to qualify for a loan. Again, the government guarantees the loan, so lenders are more willing to approve loans. However, lenders can (and do) set standards that are stricter than FHA requirements.

    If you’re having trouble with one FHA approved lender, you might have better luck with another.

    Note: you never know until you apply. Even if you think you won’t qualify after reading this page, talk with an FHA approved lender to find out for sure.

    Income limits: there are none. You’ll need enough to show that you can repay the loan (see below) but these loans are geared towards lower income borrowers. If you’re fortunate enough to have a high income, you aren’t disqualified like you might be with certain first time home buyer programs.

    Debt to income ratios : to qualify for an FHA loan, you’ll need to have reasonable debt to income ratios. That means that the amount you spend on monthly payments needs to be “reasonable” when compared to your monthly income. In general, you have to be better than 31/43, but in some cases it’s possible to get approved with D/I ratios closer to 55%.

    Example: assume you earn $3,500 per month. To meet the requirements, it is best to keep your monthly housing payments below $1,225 (because $1,225 is 31% of $3,500). If you have other debts (such as credit card debt ), all of your monthly payments combined should be less than $1,505.

    To figure out how much you might spend on a mortgage payment. use our online calculator .

    Credit score: borrowers with low credit scores are more likely to get approved if they apply for an FHA loan. Scores can go as low as 580 if you want to make a 3.5% down payment. If you’re willing and able to make a larger down payment, your score can potentially be lower still.

    Loan amount : there are limits on how much you can borrow. In general, you’re limited to modest loan amounts relative to home prices in your area. To find the limits in your region, visit HUD’s Website .

    How do FHA Loans Work?

    The FHA promises to pay lenders if a borrower defaults on an FHA loan. To fund this obligation, the FHA charges borrowers a fee. Home buyers who use FHA loans pay an upfront mortgage insurance premium (MIP) of 1.75%. They also pay a modest ongoing fee with each monthly payment.

    If a borrower defaults on an FHA loan, the FHA uses those collected insurance premiums to compensate the bank.

    Why Not Use an FHA Loan?

    While they come with appealing features, you may find that FHA loans are not for you. They may not provide enough money if you need a large loan. But the main drawback is that the upfront mortgage insurance premium (and ongoing premiums) can cost more than private mortgage insurance would cost.

    In some cases, you can still buy a house with a very little down using a standard loan (not an FHA loan). Especially if you’ve got good credit. you might find competitive offers that beat FHA loans.

    As always, you should compare offers from several different lenders – including FHA loans and conventional loans – before you agree to anything.


    Pros and Cons of Adjustable Rate Mortgages #mortgage #loans


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    Adjustable Rate Mortgages

    Updated March 15, 2016

    Adjustable rate mortgages (ARMs) are home loans with a rate that varies. As interest rates rise and fall in general, rates on adjustable rate mortgages follow. These can be useful loans for getting into a home, but they are also risky. This page covers the basics of adjustable rate mortgages.

    The Rate

    Adjustable rate mortgages are unique because the interest rate on the mortgage adjusts with interest rates in the marketplace.

    This is important because mortgage payment amounts are determined (in part) by the interest rate on the loan. As the interest rate rises, the monthly payment rises. Likewise, payments fall as interest rates fall.

    The rate on your adjustable rate mortgage is determined by some market index. Many adjustable rate mortgages are tied to the LIBOR, Prime rate. Cost of Funds Index, or other index. The index your mortgage uses is a technicality, but it can affect how your payments change. Ask your lender why they’ve offered you an adjustable rate mortgage based on a given index.

    Adjustable Rate Mortgage Benefits

    A main reason to consider adjustable rate mortgages is that you may end up with a lower monthly payment. The bank (usually) rewards you with a lower initial rate because you’re taking the risk that interest rates could rise in the future. Contrast the situation with a fixed rate mortgage. where the bank takes that risk.

    Consider what happens if rates rise: the bank is stuck loaning you money at a below-market rate when you have a fixed rate mortgage. On the other hand, if rates fall, you’ll simply refinance and get a better rate.

    Pitfalls of Adjustable Rate Mortgages

    Alas, there is no free lunch. While you may benefit from a lower payment. you still have the risk that rates will rise on you.

    If that happens, your monthly payment can increase dramatically. What was once an affordable payment can become a serious burden when you have an adjustable rate mortgage. The payment can get so high that you have to default on the debt.

    Managing Adjustable Rate Mortgages

    To manage the risks, you’ll want to pick the right type of adjustable rate mortgage. The best way to manage your risk is to have a loan with restrictions and “caps”. Caps are limits on how much an adjustable rate mortgage can actually adjust.

    You might have caps on the interest rate applied to your loan, or you might have a cap on the dollar amount of your monthly payment. Finally, your loan may include a guaranteed number of years that must pass before the rate starts adjusting – the first five years, for example. These restrictions remove some of the risk of adjustable rate mortgages. but they can also create some problems.

    Now you re up to speed on how ARM mortgages work. Let s look at how they sometimes don t work in your favor. Note that the term ARM Mortgage is redundant – the M is for mortgage – but we ll use this term throughout this page for familiarity.

    ARM mortgage caps can work in a variety of ways. There are periodic caps and lifetime caps. A periodic cap limits how much your rate can change during a given period – like a one year period.

    Lifetime caps limit how much your ARM mortgage rate can change over the entire life of the loan.

    ARM Mortgage Examples

    Assume you have a periodic cap of 1% per year. If rates rise 3% during that year, your ARM mortgage rate will only rise 1% because of the cap. Lifetime caps are similar. If you’ve got a lifetime cap of 5%, the interest rate on your loan will not adjust upward more than 5%.

    Keep in mind that interest rate changes in excess of a periodic cap can carry over from year to year. Consider the example above where interest rates rose 3% but your ARM mortgage cap kept your loan rate at a 1% increase. If interest rates are flat the next year, it’s possible that your ARM mortgage rate will rise another 1% anyway — because you still “owe” after the previous cap.

    There are a variety of ARM mortgage flavors available. For example, you might find the following:

    • 10/1 ARM Mortgage – the rate is fixed for 10 years, then adjusts every year (up to the cap, if any)
    • 7/1 ARM Mortgage – the rate is fixed for 7 years, then adjusts every year (up to the cap, if any)
    • 1 Year ARM Mortgage – the rate is fixed for one year then adjusts annually up to any caps

    Not All Caps are Created Equal

    Note that caps may differ over the life of your loan. The first adjustment may be up to 5%, while subsequent adjustments may be capped at 1%.

    If this is the case on an ARM mortgage you’re considering, be prepared for a wild swing in your monthly payments when the first reset rolls around.

    Pitfalls of Caps

    While caps and restrictions may protect you, they can cause some problems. For example, your ARM mortgage may have a limit on how high the monthly payment will go – regardless of movements in interest rates. If rates get so high that you hit the upper (dollar) limit on your payments, you may not be paying off all the interest you owe for a given month. When this happens, you get into negative amortization –meaning your loan balance actually increases each month.

    Buyer be Aware

    The bottom line with ARM mortgages is that you need to know what you’re getting into. Your lender should explain some worst-case-scenarios so that you aren’t blindsided by payment adjustments. Most borrowers look at these what-ifs and assume that they will be in a better position to absorb payment increases in the future – whether it’s 5 or 10 years out.

    This very well may be the case, but things don’t always work out the way we’ve planned.


    The Pros and Cons of a Reverse Mortgage #refinance #home #mortgage #rates


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    The Pros and Cons of a Reverse Mortgage

    A reverse mortgage can be a valuable retirement planning tool that can greatly increase retirees income streams by using their largest assets: their homes. A reverse mortgage allows homeowners to borrow against their home s equity, while still maintaining ownership of the home.

    The best part about a reverse mortgage is that unlike conventional mortgages, there are no payments involved. Instead, the lender makes payments to the borrower either through a lump sum, monthly payments, or a line of credit.

    The reverse mortgage is repaid when the borrower dies, permanently moves from the residence, or the property is sold. Instead of you paying the bank monthly and the equity in your home growing, the bank pays you monthly, and the equity may shrink. It is important to know that you must be 62 in order to qualify.

    How can a reverse mortgage benefit me?

    A reverse mortgage can be a powerful source of funding for individuals who need to increase their income to be comfortable in retirement. The largest personal asset most retirees possess is their home. In many cases, a retiree s home is paid off. A reverse mortgage increases income without increasing monthly payments and allows a retiree to stay in his or her home.

    If you are at least 62 and considering a reverse mortgage, the amount you will be eligible for is based on several things, most importantly, the value of your home, your age, and interest rates. You will be eligible for more money the older you are, the more your home is worth, and the lower current interest rates are.

    Negative aspects of reverse mortgages

    Among the negatives of a reverse mortgage are the costs involved. All mortgages have costs, but reverse mortgage fees, which can include the interest rate, loan origination fee, mortgage insurance fee, appraisal fee, title insurance fees, and various other closing costs, are extremely high when compared with a traditional mortgage. Costs vary but can be as high as $30,000 or $40,000. This cost is not paid out of pocket, but rolled into the loan.

    Another potential issue to be aware of is the requirement to pay back the loan if you should permanently move out of the home. This may not sound like a problem now, but if you ever need to enter a full-time care facility, the loan would become due if you left your home for a year or more.

    The final downside to the reverse mortgage affects your estate. The reverse mortgage will almost always decrease the equity in your home, which will leave less money to your heirs.

    Reverse mortgage myths and the truth

    Misconceptions about reverse mortgages may cause homeowners to avoid consideration of these complex loans. Or, eligible seniors might proceed too hastily without realizing all the possible repercussions of their financial decisions. Here are a few wrong ideas and realities about this real estate option.

    Myth: The lender takes title to the home.

    Truth. You still retain ownership of your home. The reverse mortgage is only a lien against the property.

    Myth: The loan can exceed the value of the property, sticking you or your heirs with a large bill when you eventually leave your home.

    Truth: A reverse mortgage is a non-recourse loan, which means that you, your heirs, or your estate will never owe more than the appraised value of the home at loan maturity.

    Myth: You can t get a reverse mortgage if you currently have a conventional mortgage.

    Truth: Although this is true, you can get a reverse if you use the proceeds to pay off your existing mortgage at close.

    Myth: A reverse mortgage can cause you to be evicted from your home.

    Truth: You leave your home when you choose. No one will force you from your home. The reverse mortgage is not due until your home is no longer your primary residence.


    What Is Mortgage Payment Protection Insurance – Pros – Cons #obama #mortgage #relief


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    What Is Mortgage Payment Protection Insurance Pros Cons

    If you have a mortgage on your home, chances are you ve gotten plenty of offers for mortgage protection insurance. For example, shortly after I signed the papers for my new home, I started receiving mailers with information on mortgage protection insurance. It has now been more than a year, and I am still receiving these offers.

    When you re inundated with these mailers, it s difficult to know what to take seriously and what to throw out as junk mail. Plus, why does anyone need mortgage protection insurance anyway? Answering these basic questions will help you the next time you see an offer in your mailbox.

    What Is Mortgage Protection Insurance?

    Generally speaking, mortgage protection insurance will cover some or all of your monthly mortgage bill in the event that you lose your job or become disabled, for various lengths of time. Most of these policies will also pay off your entire loan should you pass away. Policies can differ greatly from one agency to another, so you need to know what a given policy offers for the price.

    Often, you ll have the option to purchase mortgage protection insurance from your lender. You don t always have to take them up on the offer, however, since you can also obtain mortgage protection through most insurance agencies and other independent sellers. Shop around because different agencies will have different coverage options and prices.

    The cost of mortgage protection insurance varies from person to person, and as with life insurance. your rate is based on your age and health, as well as the current value of your home, the amount of your regular payment, and the current payoff amount of the mortgage. With policies that make monthly payments in the event of a disability, your cost will vary greatly based upon the industry in which you work. A roofer, for example, is at a higher risk of disability than an accountant.

    If you purchase mortgage protection insurance that pays off your loan in the event of your death, your insurance company will send a check directly to your lender for the current payoff amount on your mortgage. In turn, your heirs won t have to deal with a home that has a mortgage attached to it. If your insurance covers disability or job loss, they may not cover your entire mortgage payment. Instead, they ll cover a certain amount that s specified in your contract.

    Mortgage protection insurance is not the same thing as private mortgage insurance, which goes to the lender if you default on your mortgage, and doesn t have a specific benefit for you the borrower. Mortgage protection insurance, however, protects you as a borrower. Although many lenders offer the insurance, it s not built to protect them.

    Benefits of Mortgage Protection Insurance

    1. Very high acceptance rates. There are very few reasons why an insurance provider would turn you down for mortgage protection insurance. While many people are counting on their life or disability insurance to cover these costs, some people have trouble getting life insurance because of their age or pre-existing medical conditions. If you re in this scenario, then mortgage protection insurance can be your best option to protect your family s standard of living.
    2. Peace of mind. As with any insurance policy, you never really know if you will ever use the insurance. But the safety net of insurance provides peace of mind. Some people go to work every day wondering what will happen to their home if they lose their job or become disabled. With the right mortgage protection insurance, you don t have to stress and you ll know that your payments will be made.

    Drawbacks

    1. Maximum payment limitations. If you lose your job, your policy will not provide a sum of money equal to your normal monthly wages. Instead, how much you receive will be defined in your contract policy as a set amount or percentage. This may not seem entirely fair at first, but insurance companies place this limit to motivate a quick return to work.
    2. Balancing your budget. If you have a very low mortgage payment, mortgage protection insurance may not be worth the commitment for you. Conservative investing in an emergency fund can give you enough of a cushion to make your monthly payments during unemployment or a disability. Maintaining an emergency fund about 3-6 months salary is your way to make sure you can stay up to date on your payments without surrendering the monthly premium to an insurance company.
    3. Declining value over time. If you take out a $200,000 life insurance policy and keep paying your premiums, your heirs will receive $200,000, regardless of when you pass away. Mortgage protection insurance, however, only covers the payoff amount on your mortgage, which goes down as you keep paying it every month. That means if you ve owned your home for 20 years, and you originally had a payoff amount of $200,000, your payoff amount will have declined significantly by now. Despite that falling payoff amount, you ll still probably be paying the same premium on your mortgage protection insurance.

    Alternatives to Mortgage Insurance

    Many people use mortgage protection insurance in place of or along with traditional life insurance or disability insurance. If you can get approved with a good rate for either of these products, you can count on having that money in case of disability or death as long as you are able to maintain your premium payments.

    Few agencies, however, will offer job-loss insurance, and some mortgage protection insurance plans will cover some or all of your mortgage payments if you lose your job. You can also focus on beefing up your emergency fund so you ll be able to cover several months worth of mortgage payments in case you become disabled or lose your job.

    Final Word

    If you have a risky job or health concerns that make life insurance or disability insurance difficult to obtain, you should look into your options in mortgage protection insurance policies. Make sure you take the time to shop around before making a final decision you need to know the details of the policy before you commit. Questions to ask include what the policy covers, the monthly cost, the payout you can expect, when the policy would pay out, and any other features that are important to you and your family.

    Have you used mortgage protection insurance? How did it work out for you? If you don t carry mortgage protection insurance, what s your backup plan?


    Pros and Cons of Adjustable Rate Mortgages #canada #mortgage #rates


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    Adjustable Rate Mortgages

    Updated March 15, 2016

    Adjustable rate mortgages (ARMs) are home loans with a rate that varies. As interest rates rise and fall in general, rates on adjustable rate mortgages follow. These can be useful loans for getting into a home, but they are also risky. This page covers the basics of adjustable rate mortgages.

    The Rate

    Adjustable rate mortgages are unique because the interest rate on the mortgage adjusts with interest rates in the marketplace.

    This is important because mortgage payment amounts are determined (in part) by the interest rate on the loan. As the interest rate rises, the monthly payment rises. Likewise, payments fall as interest rates fall.

    The rate on your adjustable rate mortgage is determined by some market index. Many adjustable rate mortgages are tied to the LIBOR, Prime rate. Cost of Funds Index, or other index. The index your mortgage uses is a technicality, but it can affect how your payments change. Ask your lender why they’ve offered you an adjustable rate mortgage based on a given index.

    Adjustable Rate Mortgage Benefits

    A main reason to consider adjustable rate mortgages is that you may end up with a lower monthly payment. The bank (usually) rewards you with a lower initial rate because you’re taking the risk that interest rates could rise in the future. Contrast the situation with a fixed rate mortgage. where the bank takes that risk.

    Consider what happens if rates rise: the bank is stuck loaning you money at a below-market rate when you have a fixed rate mortgage. On the other hand, if rates fall, you’ll simply refinance and get a better rate.

    Pitfalls of Adjustable Rate Mortgages

    Alas, there is no free lunch. While you may benefit from a lower payment. you still have the risk that rates will rise on you.

    If that happens, your monthly payment can increase dramatically. What was once an affordable payment can become a serious burden when you have an adjustable rate mortgage. The payment can get so high that you have to default on the debt.

    Managing Adjustable Rate Mortgages

    To manage the risks, you’ll want to pick the right type of adjustable rate mortgage. The best way to manage your risk is to have a loan with restrictions and “caps”. Caps are limits on how much an adjustable rate mortgage can actually adjust.

    You might have caps on the interest rate applied to your loan, or you might have a cap on the dollar amount of your monthly payment. Finally, your loan may include a guaranteed number of years that must pass before the rate starts adjusting – the first five years, for example. These restrictions remove some of the risk of adjustable rate mortgages. but they can also create some problems.

    Now you re up to speed on how ARM mortgages work. Let s look at how they sometimes don t work in your favor. Note that the term ARM Mortgage is redundant – the M is for mortgage – but we ll use this term throughout this page for familiarity.

    ARM mortgage caps can work in a variety of ways. There are periodic caps and lifetime caps. A periodic cap limits how much your rate can change during a given period – like a one year period.

    Lifetime caps limit how much your ARM mortgage rate can change over the entire life of the loan.

    ARM Mortgage Examples

    Assume you have a periodic cap of 1% per year. If rates rise 3% during that year, your ARM mortgage rate will only rise 1% because of the cap. Lifetime caps are similar. If you’ve got a lifetime cap of 5%, the interest rate on your loan will not adjust upward more than 5%.

    Keep in mind that interest rate changes in excess of a periodic cap can carry over from year to year. Consider the example above where interest rates rose 3% but your ARM mortgage cap kept your loan rate at a 1% increase. If interest rates are flat the next year, it’s possible that your ARM mortgage rate will rise another 1% anyway — because you still “owe” after the previous cap.

    There are a variety of ARM mortgage flavors available. For example, you might find the following:

    • 10/1 ARM Mortgage – the rate is fixed for 10 years, then adjusts every year (up to the cap, if any)
    • 7/1 ARM Mortgage – the rate is fixed for 7 years, then adjusts every year (up to the cap, if any)
    • 1 Year ARM Mortgage – the rate is fixed for one year then adjusts annually up to any caps

    Not All Caps are Created Equal

    Note that caps may differ over the life of your loan. The first adjustment may be up to 5%, while subsequent adjustments may be capped at 1%.

    If this is the case on an ARM mortgage you’re considering, be prepared for a wild swing in your monthly payments when the first reset rolls around.

    Pitfalls of Caps

    While caps and restrictions may protect you, they can cause some problems. For example, your ARM mortgage may have a limit on how high the monthly payment will go – regardless of movements in interest rates. If rates get so high that you hit the upper (dollar) limit on your payments, you may not be paying off all the interest you owe for a given month. When this happens, you get into negative amortization –meaning your loan balance actually increases each month.

    Buyer be Aware

    The bottom line with ARM mortgages is that you need to know what you’re getting into. Your lender should explain some worst-case-scenarios so that you aren’t blindsided by payment adjustments. Most borrowers look at these what-ifs and assume that they will be in a better position to absorb payment increases in the future – whether it’s 5 or 10 years out.

    This very well may be the case, but things don’t always work out the way we’ve planned.


    Reverse Mortgage Pros and Cons #reverse #mortgage #calculator


    #reverse mortgage disadvantages

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    Reverse Mortgage Pros and Cons

    Pros of Reverse Mortgages

    • Allows the homeowner to stay in the home.
    • Can pay off existing mortgages on the home.
    • No monthly mortgage payments are required, however the homeowner must live in the home as their primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.
    • The homeowner receives payments on flexible terms:
      • Credit line for emergencies
      • Monthly payments
      • Lump sum distribution
      • Any combination of the above
    • A reverse mortgage can not get upside down so the heirs will never be personally liable for more than the home is sold for.
    • Heirs inherit the home and keep any remaining equity after the balance of the reverse mortgage is paid off.
    • Loan proceeds are not taxable.
    • The interest rate may be lower than traditional mortgages and home equity loans.

    Reverse Mortgage Cons

    • The fees on a reverse mortgage are the same as a traditional FHA mortgage but are higher than a conventional mortgage because of the insurance cost. The largest costs are:
      • FHA mortgage insurance
      • Origination fee
    • The loan balance gets larger over time and the value of the estate/inheritance may decrease over time.
    • A reverse mortgage loan usually does not affect eligibility for entitlement programs, such as Medicare or Social Security benefits. However, some needs based government benefits such as Medicaid and Supplemental Security Income (SSI) may be affected by a reverse mortgage loan. You should consult a qualified professional to determine if there would be any impact to your government benefits.
    • The program is not well understood by most individuals. However, the availability of independent reverse mortgage counseling helps.

    Next Step: Take 3 minutes now to calculate your eligibility for a reverse mortgage loan below.