The mortgage cost averaging was taken from the principle of dollar cost averaging. It has proven to be more effective way to earn gains from investment than lump sum investing. The same principle can be applied to mortgage.
The borrowers start the panic attack as the mortgage interest rate start to rise. If the interest rate keeps rising, the mortgage payment may be unreachable for the borrower. The borrower takes a risk for foreclosure.
The home property is a huge investment. To focus on the house as an investment takes the pain out of mortgage. The greater the risk leads to greater rewards. Hence, the principle of mortgage cost averaging helps to condition our mind to succeed.
The interest rate of the mortgage is a cycle of seven to ten years. Every seven to ten years, the interest rate reaches the peak of high or low. So, the cost of mortgage varies thru the years.
Traditionally, the dollar cost averaging relates to investment of shares, stocks, and mutual funds. Since the home property is an investment, the principle of dollar cost averaging can be applied to mortgage. The price of the home comes in a huge price tag. Often, the borrower takes a mortgage to purchase a home.
The principle of dollar cost averaging work this way. The investor buys shares, stocks, or mutual fund in a set interval like monthly, or bi-weekly. The price of shares, stocks, or mutual funds may be high or low at some point. Thus, the cost of shares, stocks, or mutual funds averages. Thereby, the investment gains faster.
The first step is to calculate a mortgage. Using the mortgage calculators, you calculate the different mortgage payment for series of interest rate. See what mortgage payment is tolerable. The interest rate of the tolerable mortgage payment tells if you are paying high or low. For example, the interest rate of six percent on 400,000 principal is tolerable for me.
If the interest rate increases so high, the mortgage payment proves to be unbearable. There are available mortgage refinancing options. Talk to your mortgage lenders for more information.
Using reverse mortgage, any sixty two years old or over can convert the home equity into cash. The mortgage lenders give the cash by lump sum payment, several payments, credit line, or combination. Here are the common advantages of reverse mortgage.
Maintain the title and ownership
The borrower keeps the title and ownership of the home. The borrower is still the owner of the home. It is still the responsibility of the borrower to pay for the insurance, maintenance, repairs, and property tax.
Continue to live in the home
The borrower can live in the home as long as the borrower likes. In case the borrower decides to sell or move, the capital gain pays off the reverse mortgage first. The rest of capital gain is for the borrower to keep.
No Mortgage Monthly Payments
In a traditional mortgage, the borrower makes monthly mortgage payments. Unlike the traditional mortgage, the borrower defers the mortgage payment in reverse mortgage. The borrower skips the mortgage payment until the borrower dies, sells, or moves. So, the reverse mortgage is easier to get. The borrower does not need to qualify for monthly mortgage payment.
The amount from reverse mortgage is tax-free. Reverse mortgage may provide extra cash, but reverse mortgage is not really an income. The reverse mortgage is a loan in advance. The borrower will repay the loan after the borrower past away, moves permanently, or sells the home.
The mortgage lenders can only ask for repayment as much as the value of the home. If the reverse mortgage exceeds the value of the home, the mortgage lenders can only seek from the proceeds of selling the home. The borrowers get to keep the other assets like cars, boats, investments, and insurance.
Freedom to use the extra money
The amount from reverse mortgage can be used for any expense. The borrower can use the money for home repair, home improvements, travel, and medical. However, the reverse mortgage from some government agency and non-profit organization are for single purpose only. For example, the borrower can only spend to repair the home. If you want freedom and flexibility, your best bet is Federally Insured Reverse Mortgage and Proprietary Reverse Mortgage.
The mortgage is a very scary word. The borrowers need to commit to pay off the mortgage for many years. So, there is a lot of confusion on reverse mortgage. Here are some of the questions and answers.
What is a reverse mortgage?
The senior citizens who are over sixty one years old use the reverse mortgage to get a portion of the home equity. It is tax free, because it is more like loan advance. The borrower only repays when the borrower moves, dies, or sells the home property.
How is reverse mortgage different from traditional mortgage?
The borrower uses the home equity in reverse mortgage. Thereby, the home equity of the borrower decreases. The traditional mortgage is the exact opposite. The borrowers build home equity as the borrowers pay off the mortgage.
Traditionally, the borrower qualifies for the mortgage. The financial institution checks the credit history. If the borrower qualifies, the borrower pays monthly or bi-weekly mortgage payment. In reverse mortgage, the borrower defers mortgage payment as long as the borrower lives in the home.
How much can I claim from reverse mortgage?
The total amount to claim depends on age of borrower, value of home, and interest rate of mortgage. For example, the interest rate is nine percent. If the borrower is sixty five years old, the borrower can claim twenty six percent of the home equity. If the borrower is eighty five years old, the borrower can claim fifty six percent of the home equity.
Where can I use the amount from reverse mortgage?
There are three basic reverse mortgage types. It is single purpose reverse mortgage, home equity conversion mortgage, and propriety reverse mortgage. In single purpose reverse mortgage, the borrower can only use the amount for a specific purpose such as home improvements, and property taxes. In the other reverse mortgage types, the borrower can use the amount into any expenses.
The financial institution pays the reverse mortgage in the form of lump sum payment, periodic payment, credit line, or combination.
What are the requirements for reverse mortgage?
The borrower must be sixty two years or over, live in the home, took reverse mortgage counseling, or pay off most principal. The home qualifies if the home is principal residence, single family residence, one to four units, mobile home, or FHA condominiums. If the home is more than one unit, the borrower must live in one of four units.
What are the affect on my home property?
The borrower maintains the title and ownership of the home. That means the borrower still pays the maintenance, insurance, and property taxes. After the home is sold, the capital gains pay off the amount of reverse mortgage first. If there is any remaining amount, it goes to the heirs of the home property.
Does reverse mortgage affects Social Security and Medicare benefits?
The reverse mortgage is tax free amount. It is more like loan advance. However, the amount is liquid assets. It must maintain below the maximum allowable liquid assets to get the maximum benefit from Social Security and Medicare.
The Home Equity Conversion Mortgages (HECM) is a type of reverse mortgage which allows seniors to convert the portion of the home equity into cash. The homeowner can stay in the home while the homeowner uses the home equity. With the cash, the homeowner can use the cash into any expenses such as medical, home improvements, and home repairs.
This reverse mortgage type is one of the three basic reverse mortgage types. It is also known as Federally Insured Reverse Mortgage. Hence, Federal Housing Administration (FHA) backs the Home Equity Conversion Mortgages. The FHA works under the US Department of Housing and Urban Development (HUD).
The banks, credit union, mortgage companies, and savings and loan companies can provide the services. FHA must approve the financial institution before the financial institution can offer this type of reverse mortgage.
There are four requirements for homeowner to quality. First, the homeowner must be sixty two years old or over. Second, the home is a principal residence of the homeowner. Third, the homeowner received reverse mortgage counseling. Fourth, the homeowner owns the home. Or, the home is almost paid off.
The reverse mortgage counseling is a free counseling from HUD. The HUD wants the homeowner to know the consequences, and benefits before the homeowner uses the reverse mortgage. For a while, the homeowner pays for the reverse mortgage counseling. Now, the HUD instructed the financial institution to deal with homeowner that dealt with free reverse mortgage counseling only.
There are five requirements for the home to qualify. First, the home is a principal residence. Second, the home can be a single family residence. Third, the home can be one to four units as long as the homeowner occupies one unit. Fourth, the home is manufactured or mobile home. Fifth, the home is FHA condominiums.
The maximum claim amount of reverse mortgage depends on the age, home value, and interest rate. For example, the interest rate is nine percent. The homeowner who is sixty five years old can use twenty six percent of home equity. The homeowner who is seventy five years old can use thirty nine percent of the home equity. The home owner who is eighty five years old can use fifty six percent of the home equity.
The homeowner receives the home equity in the form of monthly payment, credit line, lump sum payment, or combination. The home secures the reverse mortgage. The homeowner do not repay as long as the homeowner lives in the home. The homeowner still owns the home. It is still the responsibility of the homeowner to pay the repairs, maintenance, property tax, and insurance.
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