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Reverse Mortgage - Advantages and Disadvantages
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Bad Credit Mortgage Loan Company
Regardless of your current credit status, there is a possible solution for obtaining a mortgage loan. Bad credit mortgage loans are now available and can be very helpful in repairing your credit score.
There are two types of mortgage loans available for people with low credit scores. The most popular option is a cash out mortgage refinancing loan, the other is a home equity loan. Both o... Read mortgage refinance article
Mortgage Refinancing - How to Calculate Closing Costs and Lender Fees
If you are considering mortgage refinancing you will be required to pay lender fees and closing costs to secure the loan. Budgeting for this expense will help you avoid costly delays in the closing process. Here are several tips to help you anticipate how much your closing costs will be and avoid overpaying when mortgage refinancing.
When refinancing your mortgage you will be required t... Read mortgage refinance article
Reverse Mortgage - Advantages and Disadvantages
To qualify for a reverse mortgage, the homeowner must have equity in his home and be over the age of 62. He can choose to receive funds from this mortgage as a fixed monthly payment, a lump sum, a line of credit or a combination of these. The mortgage will not be repaid until he dies, sells his home or moves out of his home permanently.
Reverse mortgage allows a homeowner to cash in on the equity of his home. He can use the funds for any purposes such as to pay for home improvements, medical costs, long term health care and vacations. Many older Americans are tapping into these funds to make ends meet. When social security payments, savings and pensions are not enough to fund living expenses, reverse mortgage can help secure the funds a homeowner needs.
Funds from a reverse mortgage are not taxable income and have no income restrictions. So, those who are on social security or Medicare benefits are not affected. Unlike regular loans and mortgages, there is no income check when applying for this type of mortgage as no monthly repayments are required. Effectively, you can still qualify for a reverse mortgage even if you have no income.
Despite the various benefits of a reverse mortgage, it is crucial to consider its drawbacks prior to securing one.
When the homeowner dies or permanently moves out of his home, the home will need to be sold in order to pay off the mortgage. The mortgage will be due at this time, in a lump sum. If the homeowner or his inheritors want to keep the home, they would have to make payment on the home within a year of the mortgage becoming due. Reverse mortgage is not the right option for a homeowner who does not wish to sell his home.
There are quite substantial fees involved in a reverse mortgage. This type of mortgage is generally more expensive than a regular mortgage or loan. In the beginning, the homeowner is expected to pay mortgage insurance premium, origination fee, appraisal fee and closing costs. In short, a $200,000 reverse mortgage may have $10,000 worth of fees involved with it. The fees are deducted from the loan prior to the funds being released to the homeowner. There may be additional servicing fees to be incurred during the term of the mortgage.
If the homeowner still holds a mortgage on the home when he seeks out the reverse mortgage, the mortgage will need to be paid off in full with the funds from the reverse mortgage and/or personal funds as needed.
The biggest drawback to a reverse mortgage is its upfront costs. Before you decide on a reverse mortgage, determine if there is another type of loan that can fulfill your financial needs but at lower costs. Shop around to compare various reverse mortgages from different lenders. There are some state and local governments that offer lower fees on certain types of reverse mortgage.
Copyright 2006 Alvin Toh
More revealing facts and resources about reverse mortgage at www.mortgageratequotes.org/art-pro
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Direct Lender or Mortgage Broker
Which is preferable - the mortgage broker or the direct lender? The answer will vary depending on whom you ask. The broker touts a variety of sources and claims that this yields the most favorable loan terms. The lender says that the mortgage broker is just a middleman and if you go directly to the lender then you'll avoid paying broker fees. If you walk into a store that sells blue shoes, then I'm sure you'll hear that blue shoes are your color and if you walk into a red shoe store then, conversely, red shoes are more becoming. And as this author is typing, he is wondering whether you think he works at the red shoe store or blue. I'll tell you that I've worked at both and I'm not impartial; but, rather than giving you my opinion, I'll present some facts. Pay attention, ''cause the red shoe store charges too much.
Wholesale Access (wholesaleaccess.com) reports that mortgage brokers originated 68% of all mortgage loans in 2004. While this is certainly an impressive statistic - bigger does not always equate better. The real question is whether or not borrowers pay lower rates and fees on mortgages originated through brokers or on mortgages originated by direct lenders. The answer can be found in a study of data from (Q3) 1995 through (Q1) 2002. This data set was supplied by American Financial Services Association and is so encompassing that it accounted for approximately 40% of all subprime originations in 1998. The results are published in a 2004 paper titled Mortgage Brokers And The Subprime Market (ftc.gov/be/seminardocs/0405elliehausen.pdf). Please refer to the top of the first page, which effectually states that this paper can't be quoted. In compliance with this directive, I shall direct you to the conclusion on page ten of the document. The first sentence can be translated as (and I don't quote) - loans originated by mortgage brokers cost less than loans originated by the creditors. That difference was quantified (page 9) as 1.132% cost savings for those who used mortgage brokers on a first mortgage and 1.973% cost savings for those who utilized mortgage brokers on a second mortgage. There you have it! On average, it is cheaper to work with a mortgage broker than going directly to the lender; but there's still more to tell. Let's talk about these broker fees.
A broker by definition introduces buyers and sellers - by all intents and purposes, yes a middleman. The misnomer in this equation is the fundamental difference between wholesale and retail. Take for example, a lender that is in one geographical area of the country and seeks diversification of its portfolio of mortgages through the origination of loans in another state. The lender has two choices. The first is to open a retail office in that state, hire staff, buy equipment, advertise and absorb all of the associated overhead as an expense to originate retail mortgage loans that he can ultimately service. The second option is for that lender to contract with a mortgage brokerage that incurs the expense of finding the client and also originates, processes and packages the loan for submission to that lender's wholesale department. With the second option, the lender forgoes the expenses listed above and is willing to offer the mortgage broker a wholesale price in return. The broker has this same type of wholesale relationship with numerous lenders and competition among the lenders drives prices down for the broker. Yes, the broker charges a rate or fee that is higher than its wholesale cost but (as the 2004 study reveals) that rate and fee combination is still considerably lower than the retail cost charged by direct lenders.
In conclusion, I hope this article has shed some light on the difference between wholesale/retail, brokers/lenders, and blue and red shoes. Just to recap: wholesale is better than retail, brokers are better than lenders, and there is compelling evidence to explain why 68% of us prefer blue shoes.
Copyright 2006 Paul Jerome
Paul Jerome is a mortgage expert and frequent contributor to the Broken Credit Blog. The BCB is a free website created to assist the general public with information regarding credit repair and responsible mortgage lending. www.brokencredit.com
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Reverse Mortgage - Advantages and Disadvantages
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