The biggest expense incurred by any person who takes up a mortgage is the interest component. Not many people realize this, but by the time they have finished paying off all the installment on the mortgage, they have actually paid an interest component which is significantly larger than the actual mortgage taken. The only reason this doesn’t look so evident is because the longer the durations, the more spread out are the payments and look significantly within the budget.
However, you can use a mortgage calculator to ascertain how much you can comfortably pay more on your mortgage taken, against the principal amount which will actually help you shorten the duration for the mortgage taken. More amount paid will ultimately pay off the principal amount spread over the duration of the mortgage apart from the rate of interest. Banks will be very happy and obliging to accept more payments, as long as you don’t default on the mortgage which is their only main concern.
Just because you have opted for a lower rate of monthly interest, you might think you will be saving on payments comfortably. This doesn’t work that way, the more spread out payments are, the more will be the interest component you end up paying. You can compare the annual mortgage rates again conventional rates just to see how much you can save initially for a period of thirty years for the mortgage. ARM’s are appropriate for some borrowers, but for other as explained earlier, the low rate of interest just might not cut it for their monthly payments.
Decide beforehand what type of loan you want to avail, because this will affect your monthly mortgage payment. The standard period for which a mortgage can be availed is generally spread out over 30 years or 15 years. In case of the 30 year period, the monthly payments are lower but will also incur the highest amount of interest rate. The exact opposite applies for a 15 year loan period where the interest component will be a little low but the payment for monthly installments will be high.
There are number of mortgage calculators available online which can be used to ascertain the exact mortgage for the home price, associated down payment and of course the loan program which is at adjustable mortgage rates. You can also talk to banking representatives to find out more about the different rates and payment options applicable, to be compared against other financial institutions also. It is advisable to do a thorough research first hand, and not just rely on a couple of sources.
A reverse mortgage is a type of loan that allows homeowners to receive payments on their house as opposed to them making payments to the lender. At first glance, this option seems too good to be true. But, before committing to it, there are some nitty-gritty details that people must consider when opting for this type of financing. So, here is some information regarding the pros and cons to consider when getting a reverse mortgage.
Advantages
Disadvantages
A reverse mortgage is a loan that allows individuals older than 62 to improve their financial well-being. They can convert part of their home equity into lump sum cash, fixed monthly payments, or line of credit, according to their preference. The money can be used to pay for medical bills, in emergencies, or to pay off a mortgage. Here’s what you should know about reverse mortgages in case you’re looking for one.
How much can you borrow?
For reverse mortgages, the loan amount can’t exceed the value of the property against which it is borrowed. Federal regulations require lenders to ensure that the loan amount doesn’t exceed the value of the house by structuring the transactions accordingly. Additionally, these regulations state that the owner/borrower is not liable to pay off the balance amount in case it exceeds the property value.
How are reverse mortgages paid for?
A reverse mortgage is payable when the borrower sells the house, relocates permanently, or dies. Unlike forward mortgages, reverse mortgages don’t need the borrower to make any monthly payments. They are only liable to pay interest on the money received, which is rolled back into the loan balance. While the owner gets to keep the title to the home, their home equity reduces over the loan tenure.
Who can take a reverse mortgage?
This type of loan is ideal for seniors and retirees whose net worth comes mostly from the value of their home. Seniors who don’t qualify for a home equity loan or can’t refinance due to limited cash flow or poor credit can opt for reverse mortgages. Home Equity Conversion Mortgage (HECM) for purchase is a reverse mortgage that allows seniors to buy another property. That said, it is complex, and you should study the risk factors before getting one.
What are the risks associated with reverse mortgages?
Reverse mortgage scams are not unheard of. Unreputable vendors could offer to help seniors secure reverse mortgages by undertaking house repairs. They don’t provide quality results and get away with the homeowner’s money instead. For spouses living together in a home with only one spouse named as a borrower on a reverse mortgage, the other spouse can lose the home if the borrowing spouse dies first. Besides, reverse mortgage lenders charge fees and closing costs and may also charge mortgage insurance premiums for federally-insured HECMs.