There are plenty of benefits to the retirement years, one of which is the ability to finally enjoy the time that was so limited during the years of building a career and raising a family. The catch 22 is that along with the extra time retirement offers there is often less money with which to enjoy that time. One of the largest sources of available funds to tap into during the retirement years is home equity which can be accessed and enjoyed thanks to reverse mortgages.
How reverse mortgages (RMs) differ from home equity loans
RMs are one of the fastest growing home finance products today and with good reason. Unlike home equity loans, mortgages of this type don't require the homeowner to pay on a new loan. That's right, no payments ever. RMs are only available to those aged 62 and over and become payable only when the homeowner permanently leaves the residence. This would occur if the home was sold, or upon the death of the homeowners.
With a traditional home equity loan, the borrower goes through the entire home loan process including getting a credit check and signing on the dotted line to repay a large sum of borrowed cash. Reverse mortgages are just the opposite. There's no traditional credit check or repayments with RMs, because homeowners are using the equity they have already accumulated.
Tax implications of reverse mortgages and home equity loans
Another reason why the number of RMs increased more than five-fold between 2001 and 2005 is that homeowners aren't required to pay taxes on the money they receive from these mortgages. Money disbursed through reverse mortgages are equity as opposed to income, meaning that RMs don't have any impact of the amount of social security a retiree will receive. They have no impact on Social Security, Medicare or SSI. They also provide an excellent source of tax free money.
Accessing cash: reverse mortgages vs. home equity loans
With a home equity loan, homeowners generally have access to a percentage of their home's appraised value less the balance owed on the existing mortgage. A home equity loan may initially offer a higher percentage of the home's value, but only because payments are made each month that keep the loan balance level.
Reverse mortgages work differently. There are no monthly payments of any kind, as long as you continue to live in the home. Interest that accrues is deferred. A RM line of credit actually earns interest on the unused portion of funds. The current yield on the FHA monthly program is about 6.5%. With RMs, homeowners can get more spending money over time than with traditional home equity loans.
Mortgages And Home Equity Loans
When you own a home you might receive numerous solicitations to refinance your home, after a while this gets very tiring. If you have equity in your home, you can refinance you current mortgage for debt consolidation. A 2nd mortgage and a home equity loan are basically the same type of financing. You may also want to shorten your loan period to pay less on interest charges. With online lenders you can quickly trade in your balloon payment and extended loan periods for better rates and payments.
Today's homeowners who are looking to refinance have a tool that many didn't have ten years ago, the internet. A fixed rate second mortgage or variable home equity credit line can get you cash that you need and a tax deduction, you can do this without refinancing your home and you do not need to give up your low interest mortgage.
While you are looking to convert your loan, make sure you are getting the best long term financing for your budget Before refinancing do some research, there are many sites that can be used a resource to find the best interest rate and save you money in the long run.
When trying to improve your credit status there are creditors who offer credit in order to re-establish your credit and financial status. They offer credit, loans and mortgages. When times are tough and you cannot make your payments creditors will call your home, but if you cannot pay your more important bills like your home or car this will result in repo or a foreclosure.
Bad credit mortgage refinancing is used to solve two problems of investors. The first use of bad credit mortgage refinancing is applicable for those who have bad credit standing, considerable high interest card debt and a home with equity. If one of the reasons you are putting off refinancing is because your credit rating is bad, you should think again, by refinancing you can increase your credit rating if you make the payments on time.
The real estate market boomed in the 2000 and rate were low, but if you refinanced your home during this period everything has changed, the mortgage rates are much higher and as the new rates come into play the payments are much higher. If you were fortunate enough to lock in a low, fixed rate then good for you. If you have an adjustable rate mortgage that is scheduled to ?adjust? in the coming months to a higher interest rate, you might want to switch to a fixed rate mortgage to ensure your financial peace-of-mind.
You can lower your monthly payment by qualifying for a better interest rate and/or choosing a mortgage with a longer term length. A just drop of half or three quarters of a percentage point can lower your monthly payment. By refinancing your mortgage it allows a homeowner to lower his or her monthly payments or it improves the loan terms.
The interest rate on a home equity loan will always be higher then a first mortgage due to increased risk for the lender. When you hear the term home equity refinancing what everyone is talking about is tax deductions, lower interest rates to save money for the homeowner and to improve the credit score.
Both Christine Harrell & David Fishman are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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