By ANNE TERGESEN

A reverse mortgage has long been considered a loan of last resort because of its high fees. Now, a new type of reverse mortgage is attracting the attention of more-affluent borrowers eager to extract cash from their homes. But older homeowners—and the adult children who advise them—need to be aware of the new trade-offs.

Reverse mortgages allow people age 62 or older to convert their home equity into cash. The homeowner can elect to receive a lump sum, a line of credit or monthly payments. The loan is due, with interest, when the borrower dies, moves, sells the house or fails to pay property taxes or homeowner’s insurance. (With a conventional loan, such as a home-equity line of credit, a borrower can tap into a home’s equity but must make monthly repayments.)

Alex Nabaum

One of the biggest criticisms of reverse mortgages is their upfront fees, which can total as much as 5% of a home’s value. Last fall, the Federal Housing Administration, which insures virtually all reverse mortgages, introduced the “Saver,” which reduces these fees by about 40%. Lenders such as MetLife Bank, Bank of America and Wells Fargo have since begun marketing them.

To cover its potential losses on a reverse mortgage—which can occur when a home isn’t worth enough to repay the loan—the FHA traditionally pockets as much as 2% of the value of the property. This “mortgage insurance premium” is typically the largest upfront charge in a regular reverse mortgage.

With the Saver, the FHA has cut this insurance premium to 0.01%. That is because homeowners who apply for a Saver are typically limited to borrowing about 80% to 90% of what they could get with a regular reverse mortgage, says Peter Bell, president of the National Reverse Mortgage Lenders Association. On a $500,000 home, for example, a 75-year-old New York resident would receive about $262,000 with a Saver, versus $331,500 with a traditional reverse mortgage, according to MetLife Bank.

The lower lending limits mean the FHA is less likely to incur a loss—allowing for a smaller insurance premium.

Waiving Fees

At the same time, many lenders are reducing or waiving other fees on all reverse mortgages, including servicing fees and the upfront “origination fee,” which is generally 2% of the first $200,000 of a home’s value, plus 1% of the balance up to a maximum of $6,000. (Because of projected losses on reverse mortgages issued in its current fiscal year, though, the FHA recently raised a separate mortgage-insurance premium it levies to 1.25% from 0.5%.)

One caveat: While fee reductions can be especially attractive these days on fixed-rate reverse mortgages, these generally require borrowers to take out a lump sum and pay interest on the full amount over the loan’s life.

Whether a Saver makes sense for you or your parents depends on how much money you need and the amount of time your loan will remain outstanding, among other factors.

Typically, reverse mortgages are used for long-term needs, such as medical expenses. But the Saver “increases the ways in which older homeowners might use a reverse mortgage,” says Barbara Stucki, vice president for home-equity initiatives at the nonprofit National Council on Aging.

For instance, a borrower paying high upfront fees “may need to stay in the home a long time before the benefits of a reverse mortgage exceed the costs,” Ms. Stucki says. But with the Saver, that calculation could be different.

Matthew Gregory, an Atlanta-based reverse-mortgage consultant at Generation Mortgage, says a 68-year-old client with a $635,000 home near Dallas recently opted for a $300,000 Saver to avoid tapping his savings for a few years. “He thinks his investments are likely to appreciate by more than the housing market,” Mr. Gregory says.

Lower ‘Effective’ Rates

The client, a retired management consultant, could do better with a Saver than a home-equity line of credit, Mr. Gregory says. The Saver’s 4.01% “effective” rate—consisting of a 2.76% variable interest rate, plus a 1.25% annual fee—”compares favorably” with the 4.78% variable rate the client would pay for a home-equity line of credit, he says.

Although closing costs on the Saver are higher, the client plans to hold the reverse mortgage long enough to come out ahead thanks to the lower interest payments, Mr. Gregory says. The client also didn’t want to worry about his wife being saddled with monthly loan payments if something were to happen to him.

So far, lenders say, Saver loans appear to be attracting a more-affluent borrower who likes the idea of a smaller reverse mortgage and lower fees. At MetLife Bank, for example, customers with a Saver have an average home value of about $350,000, versus $250,000 for those with regular reverse mortgages.

Still, there are downsides to Saver loans. The loan amount is smaller than that of a traditional reverse mortgage. And some lenders charge slightly higher interest rates on Savers, in part because of uncertainty over investors’ interest in buying them. MetLife Bank, for example, charges 5.25% for a fixed-rate Saver, versus 5% for a standard reverse mortgage.

While “it may be appropriate to pay a higher interest rate to get a lower upfront fee,” Ms. Stucki says, such a move could backfire if a borrower plans to keep the loan for a long time.

Before talking to lenders, homeowners should consult a reverse-mortgage counselor approved by the U.S. Department of Housing and Urban Development, which oversees the federally insured reverse mortgages that account for some 99% of the market. For more information, call 800-569-4287 or go to www.hud.gov.

—Email: familyvalue@wsj.com

In purchasing a residential property, the assistance of an expert mortgage broker and the proper lending institution can help you reach the best decision for your housing needs.  But to say that the process will not be any complicated is an overstatement.  In fact, even in the presence of a seasoned professional that can present to you the appropriate options and the lucrative financing alternatives, something can go wrong.  What you can do is to start from the basics and make sure that you have the right qualifications to make your undertaking smooth sailing and properly taken care of.

In this accord, you have to consider the basic qualities that can provide you with a better chance of getting approved by the financing company.

1.      Credit history.  Obtaining a residential mortgage facility involves collateral which means that the lender needs to have a fallback in case of nonpayment.  Because the sum of money involved in these transactions is higher compared to other facilities, the lender will delve deep into your credit history to make sure that you can afford the monthly payments and ensure that you can handle your finances well.  Because your credit history is an aspect that will surely be looked into by the financing companies, you have to keep it within the acceptable level in order that you will be considered properly.

2.      Capacity to pay.  Your source of income is also a determinant that will affect your transaction with a lending institution.  You need to provide a verifiable proof of income to these financing companies to determine that you will get the most advantageous deal when it comes to a residential mortgage facility.

3.      Collateral.  Because part of the standard practice in a home loan is the offering of valuable collateral, you have to identify that the property you will be choosing is within your payment capabilities.

Because there are also a variety of reasons why you are trying to avail a residential mortgage facility, you have to disclose a description as to where the proceeds will be allotted in the processing of your application. 

An extensive examination of the basic factors as well as the use of the amount to be borrowed can provide you with higher chances of approval from a financing company.

Deciding on the right mortgage lender for you is a major decision.  You can’t just immediately accept negotiations from the first lender who offers you a loan of money.  Several things and factors should be given your utmost consideration before signing a mortgage agreement drawn to you.  Being assertive and resourceful has its own advantages when it comes to mortgage.  It will save you the hassles of legal complications in the future.

In selecting a lender that will surely give you the right kind of service, try these steps:

1.  Look for references.  Start asking about mortgage lenders.  The most trusted people to whom you can obtain reliable information regarding these matters are your friends and relatives who just bought their homes just recently.  Make a survey regarding the mortgage companies that they have connections with.  When you have created your lists of lenders from the information provided to you, you can start to contact those on the list. You can also research online so you will be able to compare if some better deals are apparent.

2.  Compute costs.  Gather information from lenders in your references regarding the rate of interests, points and an enumeration of charges and fees associated with the loan.  Ask lenders similar questions so you will be able to make comparisons.

3.  Research.  Even if you have already found the mortgage lender with the most potential, be sure to research more about it first.  Make sure that the institution is reputable and legitimate enough to offer you services.

4.  Be prepared to make negotiations.  Once you found the right lender, following strictly all the necessary actions to ensure your safety in the agreement, you are now ready to negotiate.  Talk to the lender in a professional way and try to negotiate a better deal.  Ask for concessions regarding lowering of various mortgaging fees and costs.

It is only natural that you are looking for a financial alternative that can provide you with better options when it comes to your residential loan.  This is probably the reason why you are thinking of considering refinancing your residential mortgage.  A refinancing mortgage loan is a facility that promises low interest rates, low monthly payments, and low processing fees.  Before you decide towards getting a refinancing program, you need to know first the reality behind these opportunities.

 In refinancing your residential mortgage, you will always encounter agents offering the most appealing bargains in the market.  The idea of getting a discount sounds nice, doesn’t it?  While this can be very lucrative to you because of the affordability of the option, do not easily jump on the opportunity.  The smartest move that you can make is to assess the program first before diving into the trap and waking up from a nightmare.  You may not know it but companies and agents who are giving you a good deal are actually maneuvering you to accept higher interest rates and unrealistic fees.

 The low payments that you will get from a refinancing loan apply to the processing fees related to the new mortgage.  This can cost you several dollars in the least which can be lower compared to an original mortgage.  The routine, however, will require you to pay these fees upfront and in cash.  Because the fees related to refinancing is not exactly that low, you have to properly examine a deal before engaging into it.

 In the case of low interest rates, it is true that a refinancing facility can provide you with lower charges.  You have to be aware though that the requirements asked for by the lenders in these cases are stricter and should be complied with.  Without the necessary qualifications, obtaining a refinancing facility is more likely to be declined so take the extra step to complete your documentation and keep a good credit score.

  Once you decide towards refinancing your residential mortgage, you have to review each deal carefully and make sure that you will not be on the losing end of the transaction.  While refinancing offers can be extremely impressive on one side, avoiding the risks involved in the process will surely make it more appealing and substantial for your cause.

It is quite common to feel anxious and worried when deciding whether to buy a new home or not. Almost all homebuyers share these feelings and they are all keen on gathering helpful real estate information. True enough, you will benefit from being well-informed on the whole process of buying a home.

Before you grab that dream home of yours, you have to establish how much monthly payment you can afford to pay. You also have to determine whether you qualify for a certain home loan or not. Get the status of your credit report to know what kind of home loan you are qualified to apply. Make sure that you straighten out any snags before approaching a mortgage lender. This is very important since an impressive credit rating can earn you a lower interest rate.

Secure a mortgage pre-approval from a broker with an understanding that the company is going to fund your mortgage. Make sure that you get that in writing, too. Study all payment and prepayment options that could shave off some years from your mortgage. Most importantly, choose mortgage monthly payments that are affordable and easy to manage. Once you have your pre-approval, you will learn of your loan capability and you can then start choosing a real estate.

You should only choose a real estate that is just right for your needs and financial capability. Create a wish list of all the things that you want to be featured in a home. Rank them according to the most essential to the least wanted. Should the need to compromise occur make sure that you specifically know the things that you are willing to sacrifice.

Lastly, hire a dependable and reputable real estate agent to help you out in finding a prime property in a pleasant neighborhood. Real estate agents are very knowledgeable in this field and if you want to get hold of a desirable piece of property, then they are the right people to get in touch with. They will also consider your preferences and financial situation while trying to give you the best property they can find.

You can consider getting a home loan from several lending institutions. There are the banks, mortgage companies, and other credit institutions. With different lenders come different costs so get in touch with more than one lender to ascertain that you land on the best deal possible. When you don’t want to go through the whole process alone, you can secure a mortgage through a mortgage broker. Mortgage brokers will organize the transactions between you and the lending company. In short, they will find the most suitable lender for you.

A knowledgeable broker has unlimited access to a number of lending institutions and this will give you the benefit of having a wide array of loan products and agreements to choose from. It is the job of a broker to communicate with several lenders concerning your loan application. But first, you need to sign a formal agreement which gives your broker the power to represent you as your agent. Only then will he be able to do his job to the fullest and find deals that are advantageous to your interest. Just like choosing a lending institution, you should also approach more than one broker so you know which one can give you the best services.

There are lending companies that function both as lender and broker all at once. Most brokers who run ads about their services don’t usually employ the term “broker”. To be certain, ask the lending company you are interested in if a broker is part of the deal. This piece of knowledge is important because once a broker is involve, there will be fees that must be paid for the services rendered aside from the fees that you are going to pay the lending institution. If you want to employ a broker, make sure that you ask how much he would charge and decide whether it is right for you. ]]> http://baltimorerefinanceguide.com/how-to-find-the-best-mortgage-simple-tips-to-follow/feed/ 0 http://baltimorerefinanceguide.com/refinance-your-home-and-earn-access-to-lower-interest-rate-and-more-cash/ http://baltimorerefinanceguide.com/refinance-your-home-and-earn-access-to-lower-interest-rate-and-more-cash/#comments Mon, 01 Nov 2010 15:12:08 +0000 baltimore http://baltimorerefinanceguide.com/refinance-your-home-and-earn-access-to-lower-interest-rate-and-more-cash/

Home refinancing is very popular these days because of a number of reasons. There are many advantages a homeowner can reap in refinancing. This includes being able to decrease the monthly payment he has to pay when he is able to secure a cheaper fixed rate. He can also opt to modify his adjustable rate mortgage to the more affordable fixed rate loan. Another benefit is that, he can choose to lower his interest rate in case he has originally secured a high-cost mortgage and by refinancing his home, he would also be able to gain extra money from his investment.

Last year, mortgage rates had dropped significantly to a record low. So if you are considering refinancing your home, now is a good time to lock-in your rate. It is good to remember that mortgage refinance rates have bigger chances of escalating rather than declining. So make sure that you have weighed all angles carefully before you postpone a rate lock, especially if you have already been approved for a pre-qualification for a refinancing loan that would enable you to save valuable money in the end.

Since mortgage refinancing rates have demonstrated a major decline, there’s no better time than now to think about switching to fixed-rate mortgage especially if the rate of your mortgage is adjustable. An ARM or adjustable mortgage rate has all the possibilities of increasing in the future than the existing fixed rate mortgages. But before doing any move to refinance your home, think about how long you are going to stay in your home. If you are going to live there for seven more years, then it would be advisable to switch to a fixed-rate mortgage.

Another option open to homeowners is to take out a cash-out refinancing. This allows them to acquire a new financing by applying for a second mortgage for more than the original amount secured. This is especially useful when you have build-up enough equity to pay off your current home loan. You will also be able to use your equity for other expenses such as making home renovation, debt consolidation, or spending on a vacation that is long overdue.

Once you’ve established that you can do a Baltimore refinance, and that it makes sense for you to do so right now, the next question will be; what to do with the savings you’ll be getting. While that might sound ridiculous, if you don’t make a plan for what to do with that extra cash, it will just ‘disappear’ into your day to day expenses and will never have the kind of impact on your life that it could.

In previous articles two different suggestions were made for what someone might want to do with their new found savings. In all examples we used a hypothetical monthly savings of $175 with your new mortgage. While that amount of savings is pretty good, it’s probably not enough to make many people overly excited. However, with a bit of disciplined effort applied to that money, we showed how it could turn into something that you can excited about.

In our first example applied the money to pay off existing credit card debts. For our example we used two cards with interest rates of 12% and 16% carrying balances of $4000 and $8000 respectively. In that example we applied the $175 per month to the minimum payments and reduced the pay back period from 23 years to just over 4 years.

In example number 2 we took the savings and applied it towards the principle on your Baltimore mortgage to help pay it off more quickly. Our example used a fixed rate of 5% for 30 years on a $225,000 loan. When we applied the $175 per month savings to the principle, we shaved over seven years off the mortgage and paid it off in just under 23 years rather than 30. What does that add up to for you? Over $58,000 in savings.

Our third option would be for you to invest that money each month. The investment goals could be anything from your retirement to a vacation to a child or grand child’s college expenses. The reason is totally up to you, we just want to show you what you might be able to accomplish with this ‘modest’ monthly contribution.

In trying to predict what kind of return you might get from an investment, we have to make some guesses. We’ll use conservative numbers to be safe.

Let’s say that you start of with $2000 in an investment account and you’re going to add that $175 to it each month for the next 18 years (working on a college fund for a new baby). We’re going to use a conservative annual rate of return of 7% for this example.

At the end of 18 years you would have accumulated over $83,000! That’s a pretty good start for college, I would say.

Now let’s look at a different person; a 30 year old who has plans to retire when they turn 65. Let’s also say that this account is starting with ZERO balance, but gets the $175 every month, compounding at a conservative rate of 7% annually. Given this situation, if you did nothing else for your retirement, by the time you were 65 years old this account would have over $300,000 in it. Again, not too bad.

You need to remember of course that these figures are all hypothetical. If these numbers have got you thinking though, you really owe it to yourself to discuss it in more detail with a Baltimore mortgage lender as well as an accountant and/or a financial planner.

The main take-away here is that while savings may seem like ‘small change’ at first, if you can be disciplined enough to apply those savings to a PLAN, you can have a major impact on your overall financial picture. The mortgage on your Baltimore home loan is really just a part of your bigger, overall long term financial plan.

Let’s run some numbers based on an assumption that your new Baltimore mortgage will be a fixed rate mortgage on a 30 year term. Also for the sake of argument, we’ll say the new mortgage is saving you a total of $175 each month. A bit less than $200 is a nice addition each month, but nothing to get overly excited about, right? Well, it depends… what are you going to do with that money?

In a previous example we talked about paying off other debts, such as credit cards. In that hypothetical scenario we used the numbers of two cards with balances of $4000 and $8000 at interest rates of 16% and 12% respectively. We also assumed that you were making just above the minimum necessary monthly payments and that by doing so it would take you TWENTY THREE YEARS to pay them off…. However, if you were to use a disciplined approach and used your new found savings to systematically pay them down, you could reduce those 23 years to just over 4 years, saving a TON of interest on them.

A second option for your savings could be to apply them to your existing Baltimore mortgage every month to help pay down your principle faster. If you were to do this you could dramatically shorten the amount of time it takes you to pay off your mortgage and again, save you an awful lot of money. How much could you save? Let’s take a look.

We need some specific numbers to work with, so let’s go with the following scenario. We’re going to say that your new mortgage is for $225,000 on a 30 year program at a fixed rate of 5%. If you could get yourself to apply that extra $175 you now have each month towards the principle on your new loan, the time it would take you to pay off the loan would be reduced by more than SEVEN YEARS, which would save you over $58,000 in interest on the loan! That is some serious savings!

It’s obvious that the concept of refinancing to a lower rate is very appealing to a lot of people. However, the thing that often gets overlooked is how significant a difference a small change in your Baltimore mortage rate can have on your long term net worth. And considering the economic situation we’re in right now, doing a little long-term planning might not be such a bad thing.

No matter whether you’re looking at a Baltimore refinance or if you’re considering getting a purchase money loan, do your best to look at the power of small but consistent efforts and how it can impact your overall financial picture.