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[M648]Mortgage Cash Out Refinance

by Matt, Mat

When you qualify for a reverse mortgage the lender willtake into consideration the value of the home, the age of the youngestborrower, and the interest rate. Thelender plugs these numbers into an algorithm and out pops how much money youqualify to receive. It is not a setnumber because of the variables.

Regardless, the borrower will have access to receiveroughly 50% to 75% of the value of the home. The question is how to receive that money. To answer this the borrower should choosesuch that he or she maximizes long term equity in the home. This is their money so why waste it bychoosing a poor cash-out option.

Three cash out options:

1. LumpSum: The borrower can simply choose topull all of the money out at one time. This is the simplest and most basic use of the reverse mortgage. The fixed rate and adjustable rate reversemortgage offers this option. The ARMmortgages generally allow a greater loan amount and the fixed offers moresecurity.

2. FixedMonthly Payments: The borrower may wantto supplement income in some way. Theyreally have two choices here in that the borrower can choose a monthly amountto receive or the borrower can choose to receive a payment for life. If the borrower chooses the latter thelender's algorithm determines the maximum payment the borrower can receive forlife. If the borrower chooses theformer, and the amount is more than the lender would choose for a lifelongpayment, the mortgage will have a payment ending date.

Only the ARM can accommodatethis product.

3. Lineof Credit: This is by far the mostpopular reverse mortgage product because it allows borrowers to use theirproceeds as needed. If the borrowerdoesn't need all of his money today why take it out and pay interest on themoney? The answer is there isn't, whichis why the line of credit is so popular. The line of credit allows the borrower to take money out as needed andinterest is only charged on moneys used. Any money left in the line of credit does not accrue interest againstthe home's equity.

The line of credit is onlyavailable for ARMs.

Although almost everyone chooses to use a line of creditthey typically combine it with one of the other mortgages. A typical scenario is to pull a lump sum outat close of escrow and keep the remaining balance in a line of credit.

As of last month the new law went into effect allowing reverse mortgage companies to loan based upon the new higher FHA reverse mortgage limits.
The FHA lending limit serves as a cap on the value of a home from which a reverse mortgage lender uses as a basis or starting point to determine how much money it will actually lend to the senior borrower.
When determining how much money a bank will actually lend to a prospective borrower, it uses the home's value or the lending limit, whichever is less, as a basis for the actual number. The borrower receives no benefits if the home value is in excess of the FHA lending limits.
The reverse mortgage lender uses the FHA limits or value of the home as security for the money loaned to the senior. This value, determined by a licensed FHA appraiser, is a critical element.
Two other important factors go into this determination: Interest rate and the youngest borrower's age.
Intuitively, one can understand how age plays a role. Mortgage companies work similar to insurance companies in that they want to know when the borrower is "checking out". Knowing these numbers helps them make informed decisions.
Forward lenders today have the serious problem of more being owed than the home is actually worth. Reverse mortgage companies fear the exact same problem on the tail end of these mortgages. Therefore the borrower, who will likely pass on earlier rather than later, will be loaned more money.
Interest rates are thought of in a similar manner. The greater the interest rate, the quicker the accrual of interest will eat away at the security for the mortgage. Therefore, lenders lend more to prospective borrowers as rates go down than the vice versa.
To get a true determination a borrower should contact a licensed reverse mortgage company. People want hard answers, but the reality is there aren't any until all the variables are plugged in.
For a rough guestimate, borrowers aged 90, would receive roughly seventy-five percent of the home's value or loan limits (the lesser of the two). The young sixty two year old would qualify at about fifty percent.

Article Source : How To Choose The Right Mortgage

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Both Matt & Eversemort Vanrock 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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