Knowing About Mortgage

The best financial deals are found only after afuture or require the flexibility to make large, lump-sum
thorough investigation into home loans and mortgages.payments before maturity choose these kinds of
Many people dream of owning their own home, but themortgages. Closed mortgages are committed after
high cost of homes generally requires a hometaking into consideration specific terms. If you want to
mortgage to make it a reality. A mortgage is just likepay off the mortgage balance you will have to wait
any other product; thus whether it is a home purchase,until the maturity date or pay a penalty.
refinancing or a home equity loan, the price and terms4) Conventional or high ratio
of a mortgage can be negotiated. If you decide toA conventional mortgage is one that is not more than
apply for a home equity loan, you shouldn't necessarily75% of the appraised value of purchase price of the
automatically go with the same bank that holds yourproperty. The balance amount is paid through your
first mortgage. Instead, shop around to find the bestown resources and is known as down payment. If you
rates and loan terms. Finding the right loan is always ahave to borrow more than the stipulated 75%, then
challenge; it requires checking different lenders andyou will need a high ratio mortgage. If the down
comparing options to select the home equity loan thatpayment is less than 25%, the mortgage will have to
best meets your needs!be insured. The insurer will charge a fee which will
There are different types of mortgages today to suitdepend on the amount you are borrowing and the
different classes of people. To make life easier for thepercentage of your down payment. Fees range from
old and the retired, the government has even1% to 3.5% of the principal amount and can be paid up
introduced reverse mortgages. This type of mortgagefront or added to the principal amount of the mortgage.
is a loan against the home that does not have to beREVERSE MORTGAGES:
paid back as long as the owner is alive and living in theUnlike a traditional mortgage where you make monthly
home, and at the same time provides income to thepayments to a lender, in a “reverse”
owner.mortgage, you receive money from the lender. It is a
Until recently, bad credit was something of a mystery.loan against your home or borrowings on home equity,
However, after the establishment of the FICO score, awhich you do not have to pay back as long as you
uniform credit scoring agency, measuring people'slive there and yet, retain the title to your home. It must
credit behavior has become easier. Your future creditonly be repaid once you die, sell your home or
behavior can more easily be predicted based on thispermanently move out of there. With a reverse
data. Most lenders use the FICO score as a startingmortgage the value of your home can be turned into
point when deciding whether or not to extend credit tocash which you can receive as a lump sum and up
you. Moreover, if you don't pay your monthly mortgagefront, monthly cash advance, credit line which allows
payments, the mortgage company can forecloseyou to withdraw as and when you need it or a
leading you to lose your home and affecting yourcombination of all.
creditworthiness in the future.Reverse mortgages thus help homeowners who are
In a rapidly changing economic scenario it is oftenprivileged to own a house but are cash strapped stay
difficult to keep up with the complexities of the financialin their homes and still meet their financial obligations.
world. We at have made every effort to elucidate andReverse mortgage is for seniors. To be eligible for
enunciate in simple terms, matters related to moneymost reverse mortgages, you must own your home
and mortgage. is a comprehensive site offering freeand be 62 years of age or older. The proceeds of a
and unbiased information on home loans, conventionalreverse mortgage are generally tax-free, and most
mortgages, bad credit mortgages, home equity loanshave no income restrictions. They also do not affect
and reverse mortgage. So go through to in detail andSocial Security or Medicare Benefits.
make an informed decision on all matters concerningThere are typically three types of reverse mortgages:
money and mortgage.• Single purpose reverse mortgage– these
Selecting a Mortgageare offered by some state and local government
Selecting a mortgage is not only time consuming butagencies and nonprofit organizations and have very
confusing, given the large variety of loan packages onlow costs. To qualify, one should typically belong to a
offer in the market today. With different mortgagelow or moderate-income group. They are not available
rates, varied costs and fees and multiple terms andeverywhere and can only be used for a single
conditions, you need to be well informed to make thepurpose as specified by the lender like repairs,
correct decision about which mortgage is best suitedimprovements, paying property taxes etc.
for you.• Federally-insured reverse mortgages- which are
Among other things, mortgage rates are extremelyalso known as Home Equity Conversion Mortgages
important while selecting a mortgage. Interest rates(HECMs), and are backed by the U. S. Department of
fluctuate depending on different factors that influenceHousing and Urban Development (HUD) and
the economy like prime rate, Treasury bill rates, federal• Proprietary reverse mortgages- which are
fund rate, federal discount rate and certificate ofprivate loans that are backed by the companies that
deposit rate etc. If the economy is doing well and thedevelop them.
demand for mortgages is high, the interest rates willIn both, the HCEMs and proprietary reverse
also see a climb. On the other hand, if the demand formortgages, the costs are relatively higher, widely
mortgages is low in a poor economy the interest ratesavailable and can be used for any purpose. Additionally,
will drop as well.the amount of money you can borrow with these
However, there are several other factors that are asmortgages depends on several factors, including your
or perhaps more important than interest rates thatage, type of reverse mortgage you select, appraised
determine which mortgage is right for you. Thesevalue of your home, current interest rates, and the
primarily include your financial situation such as income,area where you live. In general, the older you are, the
savings and liquidity, your housing needs and durationmore valuable your home, and the less you owe on it,
of stay, the level of risk you are willing to take as wellthe more money you can get.
as the term of your loan. All these factors need to beJust like a traditional mortgage, there are several fees
considered equally and balanced with one’sand costs associated with reverse mortgages. These
present position and future goals.charges include an origination fee, up-front mortgage
Before you decided on which mortgage is best forinsurance premium (for the FHA Home Equity
you, you will need a mortgage lender approval whoConversion Mortgage or HECM), an appraisal fee, and
based on your credit rating will offer you a loan that hecertain other standard closing costs. In most cases,
feels is within your reasonable risk limits. The mortgagethese fees and costs are capped and may be
lender will take into consideration your ability to payfinanced as part of the reverse mortgage.
and then adjust your interest rates, points, terms etcOrigination fee
accordingly. Only after this will you be able to select aThis fee covers a lender’s operating expenses,
mortgage that fits your requirements both, personallyoffice overheads and marketing costs for making the
as well as financially. You can go in for mortgagereverse mortgage. Home Keeper borrowers are
refinancing at the end of the term if such a needcharged an origination fee that may not exceed 2 %
arises.of the value of the home.
BASIC FEATURES WHILE SELECTING:Mortgage insurance premium
1. Interest rate – fixed or variable:Under the HECM program, borrowers are charged a
In a fixed rate mortgage your interest rate will notmortgage insurance premium (MIP), equal to 2% of the
change during the entire duration of your loan. This willmaximum claim amount or home value, whichever is
enable you to know exactly what your periodic payoutless Additionally there is an annual premium thereafter
is and how much of the mortgage will be paid off atequal to 0.5% of the loan balance. The MIP guarantees
the end of the term.that if the company managing your account goes out
• Federal Housing Administration Insured Loansof business, the government will intervene to ensure
(FHA)that you have continued access to your loan funds.
• Veterans Administration Loans (VA)Moreover the MIP guarantees that your debt will never
• Farmers Home Administration Loans (FmHA)exceed the value of your home at the time of
With a variable rate, the interest will vary periodicallyrepayment.
during the life of the loan, depending on interest rates inAppraisal fee
financial markets.It is paid to the appraiser who is in charge of appraising
2) Duration of mortgage: short term or long termyour home and assigning it a current market value.
The duration of mortgage is the length of currentSince Federal regulation mandate that the home be
mortgage agreement. A mortgage typically hasfree of structural defects, an appraiser will also ensure
duration of six months to ten years. Usually, if the termas much. If the appraiser uncovers property defects,
of the loan is short, the interest rates will tend to bethese will have to be repaired through an independent
low. A short term mortgage is for two years or lesscontractor whose costs can be financed in the loan.
and is appropriate for people who feel that the interestClosing Costs
rates will drop in the future, especially when it is timeInclude other miscellaneous charges such as credit
for renewal. A long term mortgage is for three yearsreport fees, flood certification fees, escrow or
or more and most suited for people who believe thatsettlement fees, document preparation fees, recording
current rates are stable and reasonable and want theand courier fees, title insurance, pest inspection and
security of budgeting for the future. After thesurvey fees.
expiration of the term loan, you can either go for aService fee set-aside is an amount deducted from the
renewal in mortgage at the current rates or repay theremaining loan proceeds at closing to cover the
balance principal owing on the mortgage.projected costs of servicing your account.
3) Open or closed mortgagesThe benefits of reverse mortgages are plenty.
Open mortgages are typically short-term loans andReverse mortgage for seniors is a boon and allows
can be paid off at any time without penalty.the older generation to live with dignity and happiness.
Homeowners who are planning to sell in the near