Reverse Equity Mortgages

Reverse mortgages have been gaining in popularity in the last few years. So how does a reverse mortgage work?

A reverse mortgage or as they are sometimes called an, reverse equity mortgage is aa type of mortgage that lets homeowners convert some of the equity in their homes in to cash. The equity you have built up in your home over the years of payments can be paid to you over a chosen time frame to supplement your income. Reverse equity mortgages are quite different from the normal types of home mortgages. This type of mortgage can be compared to some types of home equity loans or a home equity credit line.

There are several requirements before a person can qualify for a reverse equity mortgage. The homeowner must be at least 62 years old or older. There are no minimum income, medical, or credit rating requirements. However the homeowner must of either already paid off the primary mortgage or will be paying the primary mortgage off with the proceeds from the reverse mortgage.

There are several options and choices on how a reverse mortgage can be paid out to the recipient. Generally although most people pick one of three payment types. The recipient can chose to be paid in a lump sum, an all at once payment. This is mostly chosen by those who have to pay off any primary mortgages that might be on the home current.

The next payment type is monthly payments. Most people who chose this type of payment have already paid off the home and just need some extra income every month to help ends meet. And the last of the three is a home equity line of credit. Usually the people who chose this option have enough money coming in every month but would like a line of credit to cover those large unexpected bills that life likes to throw at you. Keep in mind these are just general ideas, what payment type you chose will depend on your own unique wants and needs.

Of course what is paid out in a reverse equity mortgage must be paid back at some point. There are several options here as well. There are several factors taken into account as to when a reverse mortgage must be repaid. The mortgage is repaid upon the death of the homeowner, if the homeowner sells the home, or if the owner moves out of the home.

A special note on the last one there, the homeowner moving out of the home. Some lenders and loans have a set amount of time the owner can be out of the house before repayment is required. Such absences that might trigger this could be something as small as a winter vacation to a warmer location or possibly a nursing home stay to recover from an unexpected injury. Be sure to read up and do your homework in this regard, it could save you a lot of trouble down the road. I hope we have at least answered at least some of your, how does a reverse mortgage work questions.

Reverse Equity Mortgages

Reverse mortgages have been gaining in popularity in the last few years. So how does a reverse mortgage work?

A reverse mortgage or as they are sometimes called an, reverse equity mortgage is aa type of mortgage that lets homeowners convert some of the equity in their homes in to cash. The equity you have built up in your home over the years of payments can be paid to you over a chosen time frame to supplement your income. Reverse equity mortgages are quite different from the normal types of home mortgages. This type of mortgage can be compared to some types of home equity loans or a home equity credit line.

There are several requirements before a person can qualify for a reverse equity mortgage. The homeowner must be at least 62 years old or older. There are no minimum income, medical, or credit rating requirements. However the homeowner must of either already paid off the primary mortgage or will be paying the primary mortgage off with the proceeds from the reverse mortgage.

There are several options and choices on how a reverse mortgage can be paid out to the recipient. Generally although most people pick one of three payment types. The recipient can chose to be paid in a lump sum, an all at once payment. This is mostly chosen by those who have to pay off any primary mortgages that might be on the home current.

The next payment type is monthly payments. Most people who chose this type of payment have already paid off the home and just need some extra income every month to help ends meet. And the last of the three is a home equity line of credit. Usually the people who chose this option have enough money coming in every month but would like a line of credit to cover those large unexpected bills that life likes to throw at you. Keep in mind these are just general ideas, what payment type you chose will depend on your own unique wants and needs.

Of course what is paid out in a reverse equity mortgage must be paid back at some point. There are several options here as well. There are several factors taken into account as to when a reverse mortgage must be repaid. The mortgage is repaid upon the death of the homeowner, if the homeowner sells the home, or if the owner moves out of the home.

A special note on the last one there, the homeowner moving out of the home. Some lenders and loans have a set amount of time the owner can be out of the house before repayment is required. Such absences that might trigger this could be something as small as a winter vacation to a warmer location or possibly a nursing home stay to recover from an unexpected injury. Be sure to read up and do your homework in this regard, it could save you a lot of trouble down the road. I hope we have at least answered at least some of your, how does a reverse mortgage work questions.

Mortgage Loan Modification Hardship Letter – How to Write an Effective Letter For Your Lender

You may be one of the millions of Americans who have been affected by the recession and having difficulties making their mortgage payments. There are some government sponsored programs that could help you stay in your home. A new, lower monthly payment could have the answer you are looking for. What does it take to apply and qualify for Obama's HAMP loan workout program? Here is the number one criteria for qualifying.

One of the most important parts of qualifying for a mortgage loan modification is providing that you have suffered an acceptable financial hardship. This is where writing a convincingly hardship letter becomes so important-you need to explain your circumstances to your bank so that they will be more inclined to sympathize with your situation. Here are some pointers that may help you to write your own effective hardship letter.

A mortgage loan modification is your second chance to get the lower monthly payment you need-but not everyone will qualify for these programs. The first step is to convince your lender that circumances beyond your control have caused the current payment to now be unaffordable. So, the first part of your letter needs to give a brief description of what has happened in your life to cause the financial difficulties. Perhaps you were laid off work or had your hours cut. Medical bills, death of a family member or divorce are some other reasons that your lender will consider. There are as many different situations as there are homeowners, so just take a paragraph to briefly describe what happened.

The second part of your mortgage loan modification hardship letter is very important-why? Because it tells your lender how you plan to get back on track and why you think you will be able to afford to pay and maintain the new modified payment. The last thing your bank wants to do is modify your loan, only to have you become delinquent again. You need to tell the bank how and why the modified payment will make the difference for your families budget and insure them that you will not default in the future.

Another good pointer for an effective mortgage loan modification hardship letter is to give the bank a few details about why you are so committed to keeping your home. For example, if your children are involved in school activities or sports, tell your bank about that. If you are active in your local church or community, express your desire to remain a productive member of the neighborhood and stress your commitment to the community. Remember, you are trying to gain the empathy of the person reading your letter and a few details will help make an important connection between the reader and your family.

These are just a few of the important elements that a compelling and effective hardship letter contains. Each homeowner faces a unique set of circumstances, but if you hope to be approved for a mortgage loan modification, you need to portray your families situation and motivation to stay in your home to your bank so that they will be more willing to help you with a loan workout. There are 3 critical elements to an effective hardship letter, make sure you include them all in yours.

The Retracting Self-Certification Mortgage Market

Once upon a time self-employed workers found it nearly impossible to get a mortgage unless they had an enormous deposit and a large income from their business activities that spanned many years. Those times may be about to return as lenders are pulling their self-certification mortgage products from the market as if they are tailed beef.

Many years ago lenders had strict criteria regarding who they would lend money to and the circumstances under which home loans would be approved. Life was simpler then as the great majority of the work had steady employment, a salary or wage, and monthly payslips.

However, as time went by the work slowly evolved into a mix of employed and self-employed workers, business owners, investors, and freelancers. Although a large portion of the workforce remained employed, a significant proportion of those workers began to receive bonuses and commissions instead of a salary. This created uncertainty regarding their monthly imports. Additionally, many other workers became self-employed and others became proprietors of small businesses which provided their daily bread.

Finding a standard employee with a steady, provable and predictable salary was no longer easy. This meant that traditional mortgage products were no longer applicable to a large portion of the work so lenders were forced to invent a new type of home loan to ensure they could keep on lending.

Enter the self-certification mortgage. A product originally designed for self-employed workers who did not receive a pay slip from their boss each month. Instead these workers contracted out their services to business that would pay them by the hour, or they ran their own small businesses and billed their clients when their work was done. Many self-employed individuals who worked in this manner had high levels of income so it seemed ludicrous that they should be excluded from the mortgage market.

Self-certification mortgage products were before launched onto the mortgage market with the best intentions – to satisfy the needs of self-employed individuals who lenders believed could service the loans. Unfortunately, due to lax lending rules, self-certs were also approved to people with low incomes who simply lied on their application forms about how much they earned. In addition to this, many lenders reduced their required deposit levels, meaning that people with little or no savings could also apply for a self-certification mortgage.

Because of this, great sums of money were loaned to people who should not have been approved for a mortgage. Mortgage brokers and borrowers alike took advantage of the lethal combination of low deposit requirements and not having to prove earnings to the lenders. Self-certification mortgage products are now being vigorously blamed for much of the damage that has occurred via the global credit crunch. As a result lenders have rolled hundred of self-cert products from the market and are refusing to lend to anyone on a first-time-buyer basis.

For existing home owners looking to remortgage, lenders have reverted to the stricter criteria that were attached to self-certification mortgages in the first place. These include low loan-to-value ratios and proof that applicants are really self-employed. Perhaps the lenders had it right in the beginning.

How A Mortgage Broker Works, And Should You Have One Working For You?

You may have heard of a mortgage broker, but have very little idea if what a mortgage agent does or if you will ever need one. Many people think a mortgage dealer is the same as the loan officer at their financial institution, but specializes in mortgages. But that is large a mistake.

A loan officer is an individual working exclusively for one bank or lender, while a broker can be a single person or a company acts as a go-between for a mortgage lender and a buyer by providing them with an avenue to conduct their business.

Almost all states require that a agent have a license, but the licensing standards vary from state to state. Being licensed as a broker in one state, therefore, does not necessarily qualify someone to function in the surrounding ones, and he or she will have to take the steps to become licensed according to their regulations before working as a agency in them.

The Lender's Mortgage Broker

A mortgage agency will be to serve as the marketer for either a buyer or a lender. If hired by the lender, the broker will both market the lender's mortgage services, and research the financial qualifications of potential borrowers. Working as a mortgage dealer may entailing looking into both the credit histories and income streams of those seeking mortgages, and to verify their incomes, collect their financial data, interview them, and physically visit their homes or workplaces.

After collecting all the information and completing the background investigation of a potential borrower, the interest dealer will submit the data to the lender for that he or she is acting and include a recommendation as to the borrower's creditworthiness. The bank or lending institution will assess the agency input, and include it in their final determination of whether or not to offer a mortgage. The recommendation of a mortgage merchant will be a big factor in the lender's final decision.

The Buyer's Mortgage Broker

If you're a prospective home buyer and wondering if hiring a mortgage broker will help you get the best mortgage terms, just be aware that a refinance broker will not really be working for you and in most states is not acting as a fiduciary to protect your financial interests. It's legal, in many states, for a refinance agent to recommend a higher interest loan than the borrower unnecessarily needs to accept, so that the broker can pocket the difference. And if the mortgage agency can persuade the borrowers to accept a penalty for paying their mortgage early, they will get a bonus from the lender.

So as a borrower, your best bet is to work directly with your lenders, shop around, and then use the lowest rate you are quoted as a basis for negotiations.

When to Lock or to Float Your Mortgage

For most people, especially borrowers, the ruling factor over locking or floating on a rate is the length of closing. This mainly has to do with the inconsistency of today's rates. For the past several months, rates have been historically low and fluctuations have been slight. There are those weeks, however, where rates have spiked and created hesitation and concern for many borrowers.

There are several different factors to consider when taking into consideration when to lock and when to float.

Lock and Load

Banks can be quite apprehensive when it comes to clients deciding to lock interest rates. It is because the rate upon application would not necessarily apply in time for closing. Banks usually offer higher interest rates and / or higher applicable fees in anticipation of the inconsistencies and instability of the rates. And the borrowers are likely the ones to suffer.

Floating By and By

Asking the rates to float can work for borrowers, as they would not suffer to be locked in a specified interest rate when it goes down in the market. However, if the interest rates rise then clients also have to deal with paying off more than would have had they locked into a rate arrangement.

The Guessing Game

Predicting how the rates will change in the next few days, weeks, months, and years is like playing a guessing game. The best rule of thumb is to talk to a mortgage specialist when rates are at a good point. They can advise you on how to get the best rate for your current mortgage situation and help take out some of the guessing work of the market.

Your Best Option

A lot of people will tell you the best option for a guaranteed low rate is to lock in when the closing is a few days or weeks away from the application. The general idea is to lock interest rates if the closing is up to two months or 60 days, since locking an interest rate works well for a short period.

However, if the closing is past 60 days, it is usually better to your float interest rate. When interest rates do fall, borrowers can enjoy the benefit of being handcuff-free from a specified interest rate and hope it will keep that way or keep falling until the closing period.

Home Loans – How to Avoid Swimming with Sharks!

Predatory home loan sharks are coming under increased pressure from consumer campaigners concerned at the number of Australians falling victim to rogue lenders.

It is feared the problem could get worse as interest rate hikes force struggling families to refinance their home loans. The need to keep a roof over their head head could leave some families vulnerable to lenders operating on the fringes of the credit market.

Typically, predatory lenders target people in financial trouble, who have assets, such as a home, but little ability to repay a refinanced home loan. Often the sole intent of predatory lenders is to strip as much cash from their victim as possible by charging very high interest rates, excessive responsibilities and charges.

Cases of predatory lending are characterized by high levels of default. The Credit Ombudsman Service Limited has pointed out most predatory lending cases see borrowers default quickly, due to the high interest rates charged. Defaults sometimes occur as soon as the first month.

Often the tragic exit for those who fall victim is the loss of their home and any equity they may have built up while repaying their home loan, causing real hardship for the families affected.

The issue has become so serious that a coalition of consumer groups and financial industry bodies has been set up to help raise awareness and to help tackle the problem. The Coalition includes the Public Interest Law Clearing House, The Australian Banker's Association, Legal Aid NSW, the Consumer Credit Legal Center, Abacus and the Mortgage and Finance Association of Australia.

According to Australia's Credit Ombudsman service, many victims of rogue lenders are vulnerable people who are less able to stand up for themselves. They are pre-dominant people already in financial difficulties, Centrelink recipients, pensioners, non-English speakers or people with learning or mental health disabilities.

Rogue lenders get around consumer protection rules, such as the Uniform Consumer Credit Code, by structuring loans to fall outside of the credit code's jurisdiction.

Two sad cases highlighted by the NSW Consumer Credit Legal Center show just what can happen. An unemployed couple, with four children, contacted the consumer watchdog, after being stung by unscrupulous money men. The family had gone to a broker when their home was threatened with repossession by their lender. The couple, who had fallen into serious arrears on their original home loan, also needed to raise money to pay off debts, register their car and convert a garage into an extra bedroom for an expected fifth child. The broker, who had been informed of the couple's income, set up two high interest loans, one at a whooping 23.6%. The broker was paid $ 15,000 dollars in fees and commission on top of the lender's fees. The family ended up owed $ 65,000 more than their original home loan, with little hope of ever repaying the debt.

In another devastating case, a migrant couple, who had lived in Australia for 35 years, lost their home after going to a broker to refinance their home loan to repay debts incurred due to a family crisis. The couple in their 60s had been repaying their home loan for 25 years, but after the broker arranged three loans in a couple of years they found they were unable to meet their repayments.

Home owners facing financial hardship and considering refinancing their home loan loan can get free, independent financial advice . They can contact one of Australia's state sponsored financial counsels such as the Victoria state 'Consumer Action Law Center', who are keen to help people avoid falling prey to the home loan sharks.

What to Do When Your Adjustable Rate Mortgage is Going to Adjust

Knowing that your adjustable rate mortgage is going to adjust is not a good feeling to have. And if you are like many home owners across the country your homes value probably has declined since you purchased it or refinanced the last time. Your home may have even decreed to a point where you now do not have enough equity to refinance your loan.

If you are in this type of situation and refinancing is not an option there is really only one thing you can do to stabilize your payments and save your home. You must ask your lender for help.

First you must absolutely contact the lender that holds your mortgage as soon as possible and before any financial problems begin. Let them know that your property has declined in value and that you can not refinance your current adjustable mortgage based on the lower property value.

You must also be honest with them and let them know that the increased payment is going to be hard for you to pay and you fear you may start missing payments as the interest rate continues to climb.

In most cases your lender will give you a loan modification. A loan modification is a process where your lender will change the terms and or the interest rate of your loan. They often change an ARM loan to a fixed rate or extend the fixed rate period of you ARM loan an additional six months to a year.

The goal of a loan modification is making the loan easier for you to pay and avoiding foreclosure. This is now a common practice due to the alarming amount of foreclosures in the nation

Most mortgage lenders will be willing to work with you if you have had a good solid payment history and can show the ability to pay the loan back. They will make you go through an application process and you will have to provide income and asset documentation, but an appraisal is not needed. The standard loan modification usually occurs within 30-60 days.

FHA Loan Changes and What They Mean For You

The Federal Housing Administration is going to be making some changes to the FHA loan. These changes will go into effect on October 4, 2010. The two aspects of the FHA loan that are changing are the Up Front Mortgage Insurance Premium (UFMIP) and the Mortgage Insurance Premium (MIP) that is charged to borrowers on a monthly basis.

The UFMIP is actually going to be reduced from 2.25% to 1%. This fee is taken and put into an escrow account at the US Treasury and is distributed to HUD on a monthly basis in case the borrower defaults on their loan.

The MIP is going to be raised from.55% of the loan amount per year to.85% of the loan amount per year. So what does this mean for you? Well, every situation is unique so it's important to speak with a Home Loan Expert in order to make sure you're getting the most accurate information for your situation. Your down payment and loan-to-value ratio will determine what your MIP payment will be. However, for a $ 200,000 loan, borrowers can expect to pay roughly $ 60 more per month after the new changes go into effect.

With mortgage rates currently at historic lows, and additional changes and fees on the horizon the time to complete that home refinance you've been thinking about or make your home purchase is now. Do not pay an extra penny more than you have to in today's market. Contact a trusted mortgage professional to see if an FHA loan is right for you.

SBA Default – Personal Guarantee – Can I Lose My House?

I'm constantly present with a situation where my client, a small business owner, has voluntarily given the bank (and by extension, the SBA), a lien on their home. And the key question my client requests is, "will they take my house?" Unfortunately, there is no simple answer, because the outcome of this situation depends on several key factors. Specifically:

  • Equity in the home
  • Financial status of borrower (ie, personal net worth)

Let's start by discussing the financial status of the borrower:

It is key to understand that the bank does not want to kick you out of your house. In fact, the SBA guidelines for dealing with a defaulted loan with a lien on the borrowers house specifically recommend to the bank that they attempted to work with the borrower to avoid foreclosing on their home. What this means in practical terms is that if you can "settle" with the bank for a sum of money that is approximately equal to what they would receive they should pursue a foreclosure, then the bank usually will accept the money in lieu of foreclosing and release the lien on the borrowers home.

However, accomplishing this is complicated by the fact that any money held by the borrower is frequently subject to the borrowers personal guarantee (PG) with SBA bank. So if you have "cash" available to make a settlement offer, it is also subject to the PG, and so can not be used to pay off the home. The only exception to this is if the money is in a protected asset – like an IRA or 401K.

Now let's talk about Equity in the House:

First off, it is critical to understand that the definition of "equity" is different, depending on your perspective. There is what I call Fair Market Equity, which is based on the fair market value (FMV). This is the amount of money that would be left over after satisfying the mortgages and fees (broker, legal, sales tax, etc) if you voluntarily sold your home in a normal fashion.

However, for purposes of evaluating the equity in a situation where you are dealing with a hostile SBA bank that is trying to forcibly take the home, equity is evaluated differently. For a bank to take your home, they must foreclose and then auction the home. At the foreclosure sale, the SBA bank must also be prepared to pay off the primary mortgages. So you can immediately see that if the house is illegally to fetch more at the foreclosure sale than the primary mortgage values, the SBA bank is illegally to pursue the foreclosure (more on this later). Thus, when evaluating the "equity" in a home under attack from an SBA bank, the house in no longer worth FMV, but is worth what the bank would receive at a foreclosure auction, or Liquidated Value (LV).

This value is hotly contested by SBA banks, but a good rule of thumb is a maximum of 80% of FMV (IRS and FDIC guideline for liquidated value) to as low as 50% of FMV (not uncommon in some depressed states like FL, NV, CA, and MI).

So when asked the question, "will the bank take my home?", I must first analyze what is the Liquidated Value that the SBA bank would receive at a foreclosure auction. Depending on the outcome of that analysis (Significant equality, nominal equity, no equity) the answer becomes clear.

Let's look at each of these scenarios:

Significant Equity: In cases where there is significant equity (I use $ 40K + as a rule of thumb), then the borrower must expect that the bank is going to aggressively pursue it's lien, and without the borrower can fork over a chunk of cash equivalent to the amount the bank would receive at foreclosure, then the borrower is at risk of losing their home.

Nominal Equity or No Equity: For situations where the bank would receive nominal or no cash in a foreclosure sale, then the bank has no real motivation to move forward with a foreclosure. However, that does not automatically translate into the banks willingness to release the lien. Frequently, the bank will decide to "sit" on the lien until such time as the homeowner has either paid down the primary mortgages or the house has an increase in value sufficient to make the SBA bank's lien have significant equity. In these situations, it is imperative for the borrower to make an offer of significant value (~ $ 25K) in order to get the bank to release the lien (as well as the personal guarantee). Otherwise, the strategy is simply to stop paying on ALL the mortgages and let the house go to foreclosure.

So, in summary, the answer to the question as to whether on the borrower will lose their home, is that it depends on whether there is Liquidated Value to the equity in the home, and whether the borrower has adequate financial resources to settle with the SBA bank. The worse case is when there is equity, but the borrower has no financial resources. In those cases, the bank will pursue a foreclosure, and even a bankruptcy filing may not prevent the borrower from losing their home (although the borrower should always consult with a bankruptcy attorney).