Tag Archives: Finances

Reverse Mortgages

download

It’s no surprise to anyone when we say that the aging process is a difficult thing to handle financially. There are a growing number of seniors planning to retire soon that are struggling to figure out how they will continue to pay their mortgage, maintain their standard of living, and pay medical bills, make home improvements, etc. for many reasons. For many seniors, their home is their largest and most lucrative cash asset- and could be the golden answer in helping to solve their financial worries post-retirement. Enter reverse mortgages. With the Federal Reserve keeping interest rates at an all-time low, reverse mortgages are presenting themselves to be extremely appealing for home-owners aged 62 and older that are looking to tap into their home equity. This is why on March 1st, 2016, Alpha Mortgage started offering North Carolinian’s and Virginian’s reverse mortgages within their scope of services.

So what is a Reverse Mortgage?

According to the HUD, “A reverse mortgage is a special type of home loan for homeowners 62-years or older that lets you convert a portion of the equity in your home into cash. Unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage.” Borrowers are still responsible for property taxes, homeowner’s insurance, and property maintenance, but a reverse mortgage requires no monthly mortgage payments, and borrowers do not have to pay back their loan balance until they die, sell, or move.

Reverse mortgages are extremely complicated, but are great for seniors that are cash broke/ property rich, or cash rich/ property rich. The interest and fees on the reverse mortgage are added to your loan balance each month. Over time, your home equity will decrease as your loan balance grows. It’s the reverse of a traditional mortgage. The rising loan balance can eventually grow to exceed the value of the home, however, as the borrower (or the borrower’s estate) you do not have to repay any additional loan balance over the value of your home. Wade Pfau of The American College and McLean Asset Management, highlights what consumers need to know about repaying a reverse mortgage with tips such as “Prior to death, selling, or moiving, repayments can be made voluntarily at any point to help reduce future interest due and to allow for a larger line of credit to grow for subsequent use. There is no penalty for early repayment.” Read more of his tips here.

 Why would I get a reverse mortgage?

Reverse mortgages can be used strategically for many reasons. One of the biggest reasons that people take out a reverse mortgage is to stay in their current home without having to worry about their current mortgage payment.

Many people also open a line of credit with access to the cash over time to supplement social security, 401k, unexpected costs, or unexpected medical costs. People also use reverse mortgages to pay off existing mortgages, purchase a new home that better suits their needs with age, or as retirement income plans.

Sounds Great- Am I eligible?

To be eligible to receive a reverse mortgage, you must be at least 62 years of age or older, the property must be either 1-4 unit primary residences, condominiums, or manufactured homes that meet FHA’s requirements, homeowners must own the property as their primary residence and should have substantial equity in the home, borrowers must not owe any back debt to the government, borrowers are required to maintain the property in good condition to protect the value of the home, pay their taxes annually, and pay for their home owner’s insurance in accordance to HUD guidelines.

So there you have it! Reverse mortgages are great options for seniors who are interested in tapping into their home’s equity. As we mentioned earlier, reverse mortgages are excellent solutions for seniors, but can also be complicated, and aren’t for everyone. To educate yourself further about reverse mortgages, please visit our website devoted entirely to reverse mortgages here. If you’re ready to take out a reverse mortgage today, contact us, and let Alpha Mortgage ease in your retirement process.

Should I choose a 15-Year Mortgage or a 30-Year Mortgage

4893848354_a9d58bb0ef_o

So you’ve found your dream house, and have decided to start the lending process so that you can own the keys and start making it a home. Congratulations! Once you’re sure that you can afford the home, and have found an informed and transparent loan officer, the next thing as a buyer that you need to consider is whether you should choose to secure 15 year fixed mortgage, or a 30 year fixed mortgage. When determining which loan option is best for you, it is important to weigh out the differences in affordability, your degree of job security, as well as your saving habits.

The main difference between a 15 and 30-year loan is that fifteen-year loans typically have higher monthly payments with less interest, and thirty-year loans usually have lower monthly payments in which you end up spending more interest over time. The first step in determining which term to choose is using a mortgage calculator and crunching the numbers to figure out your specific individual options and the difference in monthly payments and total amount spent. Then, ask yourself what you can honestly afford. If you can comfortably make the 15-year fixed mortgage rates, do so. If not, the 30-year option is probably best for you. Remember that making extra payments when possible is always an option (although according to the FDIC, 97.3% of people do not consistently pay extra on their mortgages).

It is also essential to evaluate your job security and emergency funds when determining which loan to choose. Are you in a position/job with a paycheck steady enough to make those payments every month? It is important to remember that once you sign the loan, you will be required to make the same payment each month, and if you choose to go with a higher monthly payment (15-year loan) it is a good idea to have an emergency fund in place just in case something happens. If you don’t have adequate savings in place, or lack an emergency fund, it is a safe bet to go with a 30-year option.

Financial saving habits are also important to consider when determining whether to go with a 15-year or 30-year loan. Before choosing which term you want to have your loan on, evaluate your spending habits. According to USA Today, many people may lack the discipline needed to save long-term, especially in amounts that would offset what they would save by switching (from a 30-year) to a 15-year mortgage. A lot of times people need that extra money for something else, so they choose to keep their money in a 30-year mortgage with lower individual monthly payments. It is important to realize that you can always pay more of your mortgage off monthly, however, many people lack the discipline to send in the extra money every month when it isn’t required by the bank. If you are confident in your financial personal discipline, and do not tap into your savings (or will need to in order to afford a shorter term), a 15-year loan might be a good option to consider.

Be sure to consider your age and professional plan for the next 15-30 years when deciding whether you want to choose a 15 or 30 year loan. Are you planning on retiring? Do you plan on having children? What about other expenses that you will have (car, student loans, etc.)? Once again, it is important to answer these questions as honestly as possible, and to go over your options with your loan officer, who will be able to give his/her honest opinion based on individual circumstances and plans and which term will be best in your scenario.

Remember – in the end, your individual financial situation, goals, and comfort levels will determine which mortgage term you should choose, and what may be right for someone else doesn’t necessarily mean it will be right for you. However, a good rule of thumb remains: if you’re comfortable making higher payments (and have an adequate emergency fund), can meet other important financial milestones such as retirement and large expenses like cars and student loans, and have strong personal discipline when it comes to finances, a 15-year mortgage is a great option to own your home in half the time you would otherwise. If any of these conditions make you uncomfortable, it is better to go with the 30-year fixed loan and add in extra payments if you can. Let Alpha Mortgage help you make the right decision when it comes to choosing your loan term.