What is a Reverse Mortgage?

A reverse mortgage is a special type of home loan only available to property owners who are 62 years old or older.

Similar to a conventional home mortgage, the home is the security for the loan, and the homeowner keeps title to the property.

Unlike a conventional home mortgage, the property owners do not make the monthly payments.  Instead all interest and fees are added to the balance of the loan.  When the property is sold the financial lender is paid all of the back interest.

This is similar to what would be considered an interest only balloon note, but instead of interest being paid during the life of the loan, it’s all paid with one big lump sum at the end of the loan.

During the life of the loan the homeowner is responsible for paying the taxes and insurance, and of course, keeps the property up.

The homeowners are also required to keep the property as their primary residence.

The obvious advantage of this type of mortgage is the homeowner gets a lump sum of money up front that does not need to be paid regularly during the life of the loan.

The down side of this type of loan is that the interest and fees are still being added to the balance of the loan, and that may be shrinking the equity in the property.

If you are 62 years or older, and you are thinking about getting a reverse mortgage, please be sure to talk to several financial professionals about the advantages and disadvantages about such a mortgage.

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What is a home refinance?

A home refinance is when you, the homeowner, decide to replace one or more existing mortgages on your home, with a new mortgage, that pays off the old mortgage, and results in a new monthly payment, and interest rate.
There are a few reasons why you might want to refinance your home.

1. Lower monthly payments. If you can get a new mortgage with a lower interest rate, or you’ve paid down you old mortgage enough, a new mortgage might result in a lower monthly payment. For example, if you have an existing mortgage with a balance of $100,000, and a monthly payment of $600.00, and an interest rate of 6%, but you have the opportunity to get a new mortgage at 4% would result in a new monthly payment of $477.00, saving you $123.00 per month or $1,476.00 per year.

2. Consolidate mortgages. If you have a second, or even a third mortgage on you home, you may want to get a new mortgage to combine the balances of the first, second and/or third mortgage into one payment. For example if you have a 1st mortgage with a balance of $60,000 and an interest rate of 6%, with a monthly payment of $600.00, and a 2nd mortgage of $30,000, and an interest rate of 5.5% and an interest only payment of $150.00 per month, total payment for the month is $750.00.  If you refinanced both of these loans with a new mortgage of $90,000, and an interest rate of 4% the new consolidated payment would be $430.00 per month.

3. Pull cash out. Sometimes you may have enough equity in your home that you can borrow more than the existing first mortgage, and actually pull out cash with the new mortgage. For example if the value of your home is $200,000, and the balance of your existing mortgage is $100,000, you could borrow $170,000 with a new mortgage, and pull out $70,000 at the loan closing.

4. Shorten the payoff date. One possible use of a new mortgage would be to get it paid off sooner. If you took out a 30 year mortgage three years ago, and you can afford a higher payment, you may want to refinance with a 15 year mortgage and pay off the mortgage, thus shortening the payoff date by 12 years.

Whatever the reason, make sure you do your research before you make the decision to refinance or not. Talk to multiple professionals to see if a refinance is better for you. That would include multiple loan agents, and maybe mortgage brokers.

We offer several loan calculators to help you determine what may happen if you take out a new mortgage.

Click here to try one out.

What is Loan Amortization?

According to dictionary.com the word “amortize” means:

“to liquidate or extinguish (a mortgage, debt, or other obligation), especially by periodic payments to the creditor or to a sinking fund.”

What does that mean?

Lenders like to lend money on a fixed payment, that don’t change over the course of the loan. But by doing that, the amount of principle, or balance of the loan, goes down over the course of the loan. Thus they can’t charge the same amount of interest on the balance.

Therefore the payment, which is a fixed amount, is broken into two parts, principle [amount of money applied to paying down the loan] and interest [amount of money the bank charges you for borrowing from them].

With an amortized loan, at the beginning, the payment is more interest, and the principle is less. Toward the end of the loan, the principle is more, the interest is less.

Most mortgages, and auto loans are typically amortized loans. When you take out a loan you should be given a payment schedule showing you the amounts of principle and interest for each payment.

The alternative would be an interest only loan. Where the periodic payment would be interest only, and the principle would not decrease. This is sometimes called a “balloon note.” At the end of the loan term the borrower would have to pay off the entire principle that would have not decreased during the life of the loan. A couple of examples of these types of loans might be a home equity line of credit (HELOC) or a credit card.

We offer calculators to allow you to see exactly what a potential loan or mortgage would look like based upon loan amount, interest rate, and term or years borrowed.

Click here to plug in the numbers to see.

Mortgage broker vs. a Direct Lender

                If you are in the market for getting new financing for either a purchase of a home, or refinancing your home, you may or may not be aware of a couple of options you have.  These options, depending upon your situation, may help you with the process.

                Option 1 is a direct lender.  Option 2 is a mortgage broker.  What’s the difference? Which one is better?  What are the advantages and disadvantages to each?  We hope to answer these questions as we move through this article

           A mortgage broker is a professional that brings together borrowers and lenders.  They do not loan you the money, they literally shop for someone to loan you the money.  They can do comparison shopping of several lenders to find the best fit situation for the borrower.

                They gather all the borrowers information that the lenders will need, and evaluates both how much borrowers can borrow and can afford. Mortgage brokers are responsible for the entire communication process between borrowers and lenders during the approval process.

They can also identify the best lenders for the situation, the best type of loan, and such, based upon geographical location, and type of property being purchased or refinanced.

Mortgage brokers can also help potential borrowers who have had credit issues, employment changes, and/or bankruptcy.

One of the main advantages of mortgage brokers is that they are a single point of contact that eliminates the need to apply to several direct lenders.

A direct lender is a financial institution that actually puts up the money for the loan.  These could include banks, some credit unions, or other mortgage companies.

Some people may choose to use a lender whom they already have a relationship with, for example if you have bank accounts at a certain bank, you could pursue a loan via that bank as an established customer.

The process would be filling out an application for the loan, and submitting it to the direct lender, with no middle man involved.  Without a middle man the process may be faster, and may be less expensive.

But if you don’t get approval, you may have to start over again with another lender.

The main difference is how they are paid.  Mortgage brokers and direct lenders can both charge fees for their services.  Make sure you do a little background check and ask what fees are involved.

Whatever your choice, we offer mortgage calculators on this web site to help you get an idea of what your monthly payment will be.

Check out our page  here  and plug in your numbers to start your process.

Use of the calculator is free.