Another Reason Some Adjustable Rate Mortgages are Not BAD!

December 1, 2010 By DanFullmer Leave a Comment

The graph above shows the long-term rates for the treasury bonds from 1799 to 2008.   Remember the government uses T-bills to finance its debt.  The white gap in the graph was a time when there was no government debt.

So why am I saying this makes some Adjustable Rate Mortgages look good, I am sorry the graph is a little blurry, but in the middle it shows the average over that 200 year time frame the rate was 4.71%.  The only time that the rate was way above the average was when the Fed did not understand inflation and which required the treasuries to be sold at a higher rate to out pace inflation.

So how does that translate to mortgages, and more importantly, how does that relate to saving money if I do a variable rate over a fixed rate?  Good question, I get this question all the time.  Well the when adjustable rate mortgages become adjustable they use two part to calculate the new interest rate.  First is the margin or spread the bank charges on the money.  This is usually between 1.5% and 2.75%.  On FHA adjustable rate mortgages, most are at 2.25%.  The second part needed to calculate the new interest rate is the index, FHA loans use the yields on Treasury securities at “constant maturity” or fancy words for they average long term bonds to create an moving average index. 

The average for the last 20 years is, 4.01466% and the last 10 years is  3.03792%.   If we add the margin to the average index the rate would be between 5.25% and 6.25% on average.

A 30 year fixed mortgage over the same time period would be around 6.75% on average.  Now I know you have been told that the adjustable rates are what caused most of the financial melt down, but it was not the product that was bad, rather the individuals using the product not using it properly.  For many it was like playing basketball with a football.  Can you get lucky and make a basket with the football, sure but try to dribble a football on a fast break.  My point simply is that it can be used as a great mortgage option, if used with part of the rest of your financial plan.

The other thing to remember is that bankers know that you will refinance right now almost every four year minimum.  So if you take the higher rate on the fixed product the bank makes more money.  If you do this every time you do a loan, the bank makes a lot more money.  Think back, how many times have you refinanced in the last 10 years?  How many in the last five?  I have some clients that have use this option to refinance about every 18 months and each time we lowered their rate without adding any closing costs to their loan.  You can do the same thing!

All I ask you to do is stop being afraid and start doing some research, see if this would work for you as well.

Now let me tell you the catalyst that makes this work even better.  You need to not take the adjustable rate to just lower your payment and spend the, that would be a disservice to yourself; rather you need to make your mortgage payment at the 30 year rate.  So you are adding additional principle payments each and every month against your loan.  Spending the difference is what most people used adjustable rates programs for in the past.

Filed Under: Mortgage Education Tagged With: , , ,

Mortgage Interest – Not Deductible Again!

December 1, 2010 By DanFullmer 1 Comment

When will the SMART people in charge learn?

A draft proposal from the National Commission of Fiscal Responsibility and Reform touched off a firestorm in Washington on Wednesday.  The proposal included, among other things, a suggestion to reform the deductibility of mortgage interest.  Within minutes of the proposal being made public, the Mortgage Bankers Association produced a statement opposing any discussion of changing the current system.

The debt reduction draft report, which was referred to on television as “a grenade rolled into the center of the room” ignited intense debate, especially concerning proposed changes to Social Security.  The suggested mortgage interest deductibility change is modest, however, in that it only proposes to eliminate interest on home equity loans, second homes, and first mortgages with a balance above $500,000.

Chairman of the Mortgage Bankers Association, Michael D. Perman, released this statement:

“Given the fragile state of the nation’s housing market, now is not the time to be scaling back incentives for home ownership.  The mortgage interest deduction is one of the pillars of our national housing policy, and limiting its use will have negative repercussions for consumers and home values up and down the housing chain.”

Mr. Perman was also concerned over proposals that would tax dividends and capital gains at standard tax rates.  He said this change could seriously impact investment in commercial real estate.  The Mortgage Bankers Association did state concern over the ballooning national debt, and pledged willingness to help identify solutions.  Still, Mr. Perman stated, “we cannot support proposals that would chip away at the foundations of the real estate market.”

Earlier this week, Mortgage News Daily columnist Rob Chrisman wrote this about mortgage interest tax deductibility…

“Any time there is a change in power, and we’re running a deficit, talk comes up about changing the deductibility of mortgage interest. The United States certainly pushes folks toward borrowing. If you don’t believe it, look at the mortgage deduction that homeowners have. (Interest on credit cards stopped being deductible in 1986.) Companies can write off almost all the interest that they pay on corporate debt (but not dividends, so debt is cheaper than equity). In our business, of course, this helps promote home ownership, since people have to come with less of a down payment. An interesting question to ask a borrower is whether or not they’d buy a home if the tax deduction went away. In countries that don’t offer the tax break, like England, home ownership is about the same as the US, but house prices are much lower. And the argument can always be made that economies are better off when people are making decisions based on economic principals rather than tax considerations, and in fact the current crisis is due in part to increased borrower debt magnifying risk. Many economists feel that any system meant to encourage people to take on more debt is not a great thing.”

If we were forced to summarize the effects of the great recession into one word, that word would have to be “change.”  These proposed changes to tax code will undoubtedly have unintended consequences, but we already are at the point where much of what we believed about the post-WWII housing arena has either come undone or been seriously damaged.

There have also been intentional changes in the housing market, which will certainly have long-term impacts on the US housing system.  The most interesting of these changes is the changing behaviors of US consumers.  One recent poll showed that, among America’s wealthiest individuals and those most able to afford homes, interest in home ownership may in fact be waning in favor of renting.

This conscious change in attitude is most likely a response to recent price corrections, and volatility in the housing market which has made it apparent to many that real estate is not a risk free investment.  This ideology so permeated our psyche that it was considered indisputable fact by many, and the realization that home prices can indeed decline has been a hard pill to swallow.  Add to this a reduction in mortgage interest tax deductions, and it’s not too difficult to determine what the lasting effects could be.

Regardless of this perception, however, we can’t fail to notice the opportunity that lays before us.  Housing prices are not at the lowest levels in many years, and mortgage rates are at all-time lows.  Buying a home in this market could very well be the equivalent of so many of our parents’ home ownership experiences.  Taken as a long-term investment, there are still very few that have grown as significantly as real estate over the past 30-years; and once this correction is behind us, there is no reason to believe that this appreciation trend won’t continue.

Filed Under: Mortgage Education Tagged With: , , ,

Mortgage Insurance – Change is Not Always Good!

November 29, 2010 By DanFullmer Leave a Comment

Mortgage insurance (also known as mortgage guaranty) is an insurance policy which compensates lenders or investors in the event of default of the mortgage loan. Default comes from a home owner not making their payments, or doing something else in the Deed that would cause a foreclosure.  Mortgage insurance can be either public or private depending upon the insurer and the mortgage option that is taken upfront.

For example, Mr. Jones decides to purchase a house which costs $200,000. He pays 5% ($10,000) down payment and takes out a $190,000 ($200,000-$10,000) mortgage.   Investors require mortgage insurance for mortgage loans which exceed 80% of the property’s sale price or appraise value.  Due to the fact that he has limited equity, Mr. Jones will be required to pay for mortgage insurance that protects the lender against his default. The lender then requires the mortgage insurer to provide insurance coverage at, for example, 20% of the $190,000, or $38,000, leaving the lender with an exposure of $152,000.

Like with any insurance the insurer will charge a premium for its coverage, in the case of mortgage insurance it may be paid by either the borrower or the lender.  If the borrower defaults and the property has to be sold at a loss, the insurer will cover the first $38,000 of losses.  Any additional loss is eaten by the investor.  Mortgage Insurance coverages offered by mortgage insurers can vary from 20% to 50% and higher.

To obtain public mortgage insurance from the Federal Housing Administration, Mr. Jones must pay a mortgage insurance premium (MIP) equal to 1.00 percent (this amount can be paid upfront or financed into the loan) of the loan amount at closing. This premium is normally financed by the lender and paid to FHA on the borrower’s behalf. Depending on the loan-to-value ratio, there may be a monthly premium as well and varies from .85% to .90%.

On September 7th 2010, the Federal Housing Administration made yet another change to Mortgage Insurance Premiums.  It should be considered a change for the worse, the monthly premiums of .85% to .90% used to be .50% to .55%.  Now they try to offset that higher monthly rate by lowering the upfront premium from 2.25% to 1.0%.  I will not complain about that piece being cheaper at all.

Let’s put some math to this well, a $150,000 loan amount would yield a MIP/FF of $1,500 versus $3,000.   The monthly mortgage premium would be $68.75 with the current premium but increased to $ 112.50 with the new premium as it is implemented. So, how do you view the benefits of these changes?  Well I believe that banks and companies need to make money, but to raise rates right now may not be the best time.  People in the industry are trying to entice people to buy the existing homes and refinance those who can still afford their home, but raising the cost to do so will not make that easy.  Yes I am stretching my head too!  If there is excess inventory, meaning it is a buyer’s market and interest rates are historically low, why slow that down by raising one of the major costs?  This increase is not a reason not to buy, as much as it is annoying.

We need to look at the reason FHA has to keep changing the mortgage insurance requirements, the easy answer would be Federal agency have a hard time leaving well enough alone.  That answer is way too easy, so let’s go deeper.

Many say that the stabilization of the FHA is paramount to enable new home buyers to purchase homes with a low down payment.  Providing the FHA with a few months of receiving the previous higher 2.25% up-front MIP, allowed the cash flow for the agency to increase substantially.  The new decrease of the MIP to 1% will decrease the cash flow, but prove to make the agency way more money in the long run, as the monthly premium is almost double.  The FHA is banking on home owners to stay put and own a home for a long while, or hold their new loan for an extended time.  Due to the fact that rates are so low this is a safe bet.

Here’s the problem though, there is a reserve requirement for FHA, meaning they have to keep so much of the insurance money that comes in from lending as liquid assets or a reserve.   This requirement is set by Congress and is now at a 2% minimum.  Well they raised the upfront to 2.25% to get back above the reserve requirement and avoid taxpayer help.  So why are they now charging more each month.  Sit down for this part; FHA is part of HUD (Dept of Housing and Urban Development) and because of this every dollar that FHA makes goes to the balance sheet of HUD.  Then HUD right now is giving about .21 out of every $1.00 back to FHA to fund its current programs.  So what does HUD do with the rest of the money?  Well they have programs to, fight homelessness, rebuild communities and revitalize cities.

Right now during a tough economic time it does not seem like a good idea for FHA to raise premiums on those that can still pay and use it to help rebuild distressed communities.   It seems like a better idea to let FHA keep maybe 20% more of their money and allow that many more current homeowners to qualify to either buy up some existing homes inventory or refinance their current home loan, allowing for more money each month to buy additional goods and services.  Then after that dust has settled and the recession is really done, use the money that is in excess to rebuild the run down communities.

Let me end with answering one of the questions I get at least a couple times a week, “How do you get out of paying the monthly premium?” Homeowners can remove mortgage insurance when the home loan is 78% or less than the home value. Since it will be tougher to remove the mortgage insurance due to a slower economic upturn, the FHA will be banking on the money for quite some time, further increasing their cash position, and enabling their programs to be offered to many more home buyers.

If FHA continues to be part of HUD, it will have fluctuation in the mortgage insurance they charge; whenever HUD has a new project they need to fund the premiums will be going up.  I would strongly suggest that you write your Congressman and tell them to consider moving FHA outside of HUD.

Find out more info on FHA and their recent changes at www.hud.gov. If you have questions and do not wish to wait on recorded lines, remember that this local Mortgage Planner will have the answers as well.

Filed Under: Mortgage Education Tagged With: , , ,

Liquidating Assets? You Have Other Options!

November 24, 2010 By DanFullmer Leave a Comment

If you are considering liquidating assets from a traditional retirement account for your housing needs, either to pay cash for a home or to increase your down payment you must read this document first! Low mortgage rates can save you tens of thousands of dollars in taxes and lost opportunity cost. Consider this example:

  • $125,000 net funds needed for down payment or cash purchase

$166,666 gross withdrawal required if you are in a 25% income tax bracket

-Withdraw $166,666, pay taxes and walk away with $125,000

$173,611 gross withdrawal required you are in a 28% income tax bracket

$186,567 gross withdrawal required you are in a 33% income tax bracket

  • Instead, borrow $125,000 @ 5% and keep your $166,666 – $186,567 invested

Avoid drawing down retirement accounts after loss
Participate in market gains after bear market

After all, if you avoid paying 5% interest on the $125,000 mortgage, you would actually be losing 5% interest (or more) on $166,666-$186,567 that you withdrew from the retirement account. This is called the “opportunity cost” of money. The $125,000 mortgage would cost you interest, but the $166,666-$186,567 withdrawal would also cost you “lost interest”, or, interest that you could be earning if you would have kept those funds invested, let me illustrate that for you below:

Opportunity Cost Mortgage Interest Cost
Funds Needed $125,000 $125,000
Funds Used (25% tax bracket) $166,666 $125,000
Opportunity Cost % 5% -
Opportunity Cost $ $8,333 -
After-tax Mortgage Cost % - 3.75%
After-tax Mortgage Cost $ - $4,688
Savings - $3,645 / year

Your money will grow at $3,645 a year above the cost of the mortgage, or in other words your rate of return is $3,645 greater than then your cost.  One thing to consider as well, is that in this case the mortgage rate is fixed and the rate of return used for illustration is roughly half of index averages.

If you use Mortgage Planning as part of your retirement planning process you will retire with more money and greater stability.

Filed Under: Mortgage Education Tagged With: , , , ,

What’s Going On With Mortgage Rates?-The Fallout From QE2

November 23, 2010 By DanFullmer Leave a Comment

Many are curious as to why interest rates have increased after the Federal Reserve very publicly announced a second round of Quantitative Easing (QE2).

Idaho mortgage-Federal Reserve BuildingAfter dropping to the lowest levels in decades, interest rates have climbed higher over the past two weeks. There is no extremely simple explanation for this, but looking at the many factors that influence interest rates will help us understand what’s happened. When investors look ahead, they don’t see very many reasons for interest rates to move lower, and many possibilities for them to increase dramatically. The major negative, on bonds anyway, is stronger than expected economic growth. There has also been more opposition to QE2, both foreign and domestic, than expected; which could lead to lower foreign demand for US debt.

In late August, the Fed announced that they would be rolling out a new stimulus program aimed at buying Treasury securities, which is known as quantitative easing. In the short term, Fed involvement in the market increases demand and pricing for bonds, including MBS. Looking forward to this increased demand, many investors jumped into the MBS market with both feet, which prompted lower mortgage rates. On November 3rd it was announced that the Fed would spend $600 billion through June 2011 on QE2, which was close to expectations.

Shortly after this announcement, mortgage rates began to move higher, with a variety of causes.  Stronger than expected economic growth indicators prompted investors to revise their outlook for economic growth. Stronger growth decreases the need for stimulus, and often leads to higher inflation as well.  There was also a stronger than expected opposition to quantitative easing from other countries, economists, and even US politicians; meaning that if the Fed planned to expand the program they would face steep resistance.  Investors really viewed the $600 billion as a down payment, sure that the Fed would spend more in the market and expand the program later on.  The opposition to the program, however, not only made this scenario unlikely; it will probably cause the program to end early if it ever completely gets off of the ground at all.   In short, the level of demand from Fed buying of bonds likely will never hit investor expectations.

Idaho mortgage-foreign currencyThe quantitative easing program pumps dollars into the economy, and the increased supply weakens the value of the dollar relative to other currencies. When foreign investors sell US securities, they must convert the US dollars they receive into their own currency.  If the value of the dollar falls, then the value of their US investment falls in relative terms to their own currency.  As a result, foreign investors may reduce their purchases of US securities, including mortgage-backed securities (MBS), which would cause yields to increase. This fear of weaker foreign demand hurt mortgage rates.  China’s announcement of a rate hike was another negative for US mortgage rates.  Yields must rise in other markets to compete with higher yields in Chinese markets. Renewed financial troubles in Ireland and other smaller European countries helped US mortgage rates a little over the past week, but those concerns have mostly passed.

Recent headlines haven’t been all bad for Idaho mortgage rates. Inflation remains incredibly low, in fact the CPI data this week showed annual core inflation was at record lows in October.  The end result, however, is that interest rates reached such extreme lows that they had no other way to go but up.

Everyone is wondering why mortgage rates have risen in the wake of the Fed’s recent, and much publicized, second round of Quantitative Easing (QE2).
Filed Under: Mortgage Education Tagged With: , , ,

Home Improvement Loans – Plus a Small Secret

November 19, 2010 By DanFullmer Leave a Comment

Home improvement projects are expensive, and most homeowners choose to finance the project. Having a high credit rating makes obtaining a home improvement loan easy. While bad credit will not necessarily prevent a homeowner from being able to secure financing, the chances of getting a good rate aren’t high.  If your credit rating is low, lenders will not approve a loan application for an unsecured loan; hence, homeowners must resort to applying for a secured personal loan instead, which requires collateral. This is not an ideal situation for most if not all of us.

When home improvements are necessary, many homeowners take advantage of their home’s equity.  There are two types of home equity loan options to look at, either a fixed rate or a variable rate.   A fixed rate loan means you pay off the loan over a specific time for a specific payment each month. The variable rate option is the home equity line of credit. With this loan option, homeowners open a line of credit with a mortgage lender. As needed, the homeowner may withdraw funds from the account using a debit card or checkbook. This option is ideal for homeowners who are undertaking many home improvement projects over an extended length of time.  When applying for a home equity loan, homeowners can use the proceeds for any purpose necessary. Common uses include home improvement projects, debt consolidation, etc.

Most would tell that this is where the story stops, but that isn’t true.  There is another loan out there called an FHA 203K loan.  This loan is available to anyone wanting to improve their home, but not add square footage.  Do you want to add better windows, improve the appliances, or re-do the roof?  The 203k allows for all of this and more.  The major difference between a 203k loan and your other options is that the rate is fixed and the payment is a 30 year loan.  This loan allows for you to borrow up to $35,000 for home improvements, based off the future value after the improvements are done.  Are you interested in buying a new home, but the new home needs new carpet, new doors, and new tile?  The 203K loan allows for that, as well as giving you money to buy the new appliances for your kitchen.  Best part is your credit score does not need to be as high as is required on a normal home equity loan.

Requirements are relatively simple, the home must be one-to-four units and the home must be 100% complete and at least one year old.   You must get a bid from a licensed contractor who will complete the work.  If you can provide proof that you can perform the work, you are allowed to do it yourself.  You cannot pay yourself to do the work, sorry no sweat equity.  The money will be disbursed in two payments, max of 50% of the cost in the first payment.

The underwriting is mostly the same, there is a little more work required by the originator and the bank.  For the reason most do not offer this product.  If you have more questions, contact us at any time.

Filed Under: Mortgage Education Tagged With: , ,

How Fast do Homes Appreciate Historically in the US?

November 16, 2010 By DanFullmer Leave a Comment

I had only found census data back to 1954 and some limited data for previous decades. I used some historical data that can be found to calculate annual home appreciation at 4.51% from 1960-2009 and dating back to the 1920’s homes have historically appreciated around 4.12% annually.

That data seems to point to appreciation between 1890 to 1930 period being really low which makes the overall averages less.

The data shows home appreciation for specific historical periods as follows :

1890 to 2009    2.96%
1900 to 2009    3.74%
1920 to 2009    3.53%
1948 to 2009    4.08%

If we divide the data to before WWII and after:

1890 to 1939    0.74%
1940 to 2009    4.61%

Or the past 100 years, 1909 to 2009: 3.43%

If you break the information down into decade chunks we will be able to see a few interesting points:

1890’s    0.53%
1900’s    1.40%
1910’s    3.30%
1920’s    -0.70%
1930’s    -0.45% Limited data available before this time period
1940’s    8.16%     The first full decade after the depression
1950’s    2.67%
1960’s    2.57%     50 year time frame 4.51%  1960 – 2009
1970’s    8.12%     Beginning of ramped inflation
1980’s    5.86%     30 year time frame 3.94%  1980 – 2009
1990’s    2.84%
2000+    3.14%

Note that these numbers are all calculated using simple math and do not account for any inflationary adjustment.

So what does all this new data tell me? First it seems the long term historical home price appreciation is 3-4% range rather than 5%. The data from the range of 1890 to 1920 is much less relevant in today’s market. During that time period we were still transitioning in the world and it was a much different place. I think the past 30 years is much more realistic of history if we’re going to use it as a platform to try to predict what may happen in the future.

Filed Under: Mortgage Education Tagged With: , , , ,

Does Refinancing Your Mortgage Make Sense for You

November 11, 2010 By DanFullmer Leave a Comment

Have you ever looked for a way to finance college education for your kids?  Does starting the business of a life time seem like only a dream? Or maybe you want to buy a new car and deduct the interest on your federal taxes? How about cash for some home improvements?  Maybe you just want a way to buy your dream house while your old house is being sold. If any of these scenarios sound familiar, then maybe you will want to look into refinancing your loan.

What does refinancing your mortgage mean? In simple terms it means that you will renegotiate your mortgage loan.  When people pay down the principle on their mortgage, they build up equity and by refinancing your mortgage; you may be able to tap into that equity.  This might seem overly simplified, but it is not.  You do not need large amounts of equity to use your home to start a new business or to help pay for your children’s college expenses.

For instance, if the market value of your home is one hundred thousand dollars and you owe ninety thousand dollars you will have ten thousand dollars of equity in your home.  A refinance of your mortgage may be available, because you have some equity in your home.  You can choose to receive cash to get something that you are wanting such as college fund money, a vacation, pay off consumer debts or home improvements.

When a person is first purchasing their home they may have to take unsatisfactory mortgage terms due to low or bad credit histories. As time goes by, your credit score may be improve or the interest rates may be lower than when you first bought your home.  If the rates have lowered then you may be able to refinance your mortgage with a lower rate of interest, which can save you quite a bit of money and reduce your monthly payment. Will it make sense to refinance your mortgage loan? For many people it does make sense.   I have clients every month, and this never stops amazing me, that have not refinanced their home since they first bought it.  Recently, I had a client that had their first and only loans since 1992; their rate was 9.75%.  We moved them to a 10 year mortgage a lowered their payment by over $300 a month.  Two clients this month were over 7%.

Look I know someone is reading this saying what a jerk, “It is easy to refinance if you have equity.”  Well, I am here to tell you there are only about 15% of people I speak with that cannot change something on their loan.  At least 30% of those are unemployed.

you are thinking of taping into your home equity, or reducing your monthly payment now is the time talk to a qualified mortgage planner so you can understand your particular options.

Filed Under: Mortgage Education Tagged With:

Getting Out Of Credit Card Debt

November 10, 2010 By DanFullmer Leave a Comment

So the question is: How do you go about getting out of credit card debt?  The answer is discipline.  You must discipline yourself.  How long have you been using your credit cards to live on? Do you even remember what a dollar bill looks like?  Now you’re in trouble because you can’t make all those payments with the money you make. This is called “living beyond your means”.

Your “means” is the amount of money you receive for the work you do each week at your job.  Your “means” is not the amount of credit you have available on that card in your wallet.  Credit cards are not free money.  You use it, you must pay it back.

There are many ways to get control of your credit card debt. You can try to go it alone and stick to a strict budget or you can talk to a credit counselor and try to consolidate your debt. This might make things easier for you to get your credit card balances paid down faster by reducing the amount you owe. Some say they can get your credit card debt reduced by 50%. But you do have to have at least $10,000 in credit card debt to qualify for some of these programs.

Getting out of credit card debt is not rocket science but it will take some serious dedication and discipline. Learning to tell yourself NO and stopping yourself from making that purchase using a credit card is a very hard thing to do. Instead plan out a budget or put money away in a savings plan for that purchase you want to make or put the item on lay-a-way. Many stores offer lay-a-way plans. Some have even brought lay-a-way back these days to help people make purchases they wouldn’t have been able to make otherwise.

Many will tell you to cut up all high interest credit cards and throw them away, keep only one lower interest rate card and make the promise to use it only in an emergency. They will also tell you to transfer high interest card balances to a lower interest rate card. This alone could save you hundreds of dollars in interest payments over time.  This can work, if you have absolutely no control, or the plastic physically pulls itself out of your wallet and forces you to swipe it.  If you have more self control than what I just described, you will want to put together a more long-term plan.  Closing credit cards will cause your credit score to go down.  As much as 35% of your credit score come from your payment history, so you need to approach this with a plan.

The best way to stop increasing your credit card debt is to stop using them, until you learn how to use them. Plain and simple! You must re-train yourself in the way you think about money and about how you are spending that money. It all comes back to discipline. Go to the bank or ATM and withdraw some cash. Feel it in your hands, smell it, (don’t taste it, that’s yucky!). Remember that feeling, that smell? Cash misses you! Cash is something you can use without hurting its feelings; it was made to be used!  When you use your credit cards, track your daily spending with a sticky note on the back and never spend more than 30% of the available limit during any given month.

Credit card debt is a never ending cycle of late charges and over limit fees amassed every single month increasing your debt to astronomical heights. Getting out of credit card debt is the best thing you can do for yourself and your family’s financial future.  Once out of debt you do not need to cut the cards up. Again, I will end with, learn how to use credit wisely.  If you use credit cards wisely you will have a higher credit score, which will cause all other credit in your life to be cheaper.

Filed Under: Credit Reports, Mortgage Education Tagged With: , ,

Reverse Mortgages Are There Any Dangers?

November 8, 2010 By DanFullmer Leave a Comment

You may have been considering it for a long time now but are afraid because someone has told about the dangers of reverse mortgages. Do these dangers have basis? Or are they simply dangers that you should not mind because the benefits are just too good to ignore?

First, let’s point out these benefits:

You get to own your home or estate for so long as you are living in it, maintaining it, and paying the insurance and property taxes. You also get to enjoy the income from the loan without taxes and spend it without restrictions.  You get the option to use it on the education of your grandchildren or on other large expenses. You are protected by the federal government because of certain strict regulations and safeguards placed on this financial mortgage program.

There are many other benefits that one can receive from taking out a reverse mortgage.  Just like any other financial loans, whether taxable or not, there are also cons or dangers which one should know before deciding to enter in to it, so to avoid regretting it in the end.

Now for the cons:

Some say that reverse mortgages come with high-front end costs that is why there are many lenders offering them. Too often, these costs are not realized at the early stage of your application because just like in other financial loans, most lenders avoid disclosing this issue. So, before you sign anything, it is always a good idea to discuss the possible high charges to avoid the big burdens in the end.  The cost has recently been reduced significantly as more reverse mortgage options have become available.

What are these high-front end costs? They could include interests, origination fees, usually mortgage insurance, appraisal fees, as well as the title and closing fees for your area.

Reverse mortgages can really look appealing to senior citizens of 62 years old and above, due mostly on the fact that they give some sort of financial leveling up for a more comfortable retirement life. On other hand, reading those dangers just mentioned above can discourage many individuals.

Do not be discouraged this product like all products is nothing more than a tool, if you use a shovel to hammer in a nail… it might work, but you will struggle to get the nail in.  Likewise a reverse mortgage is not for everyone.  Used properly as part of a retirement plan, will benefit you.  You must plan, study and know when to implement it as part your retirement plan.

I suggest asking others about reverse mortgages, just be careful you are asking someone who knows something about them.  You would not ask an accountant about plumbing, nor a baker about horse racing.  Get with an expert on financial matters.

Filed Under: Reverse Mortgages Tagged With: ,
« Older Posts
Newer Posts »