A Reverse Mortgage is a loan available to seniors and is used to release the home equity in the property as one lump sum or multiple payments. The homeowner’s obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves.
In a conventional mortgage the homeowner makes a monthly amortized payment to the lender; after each payment the equity increases within his or her property, and typically after the end of the term (e.g., 30 years) the mortgage has been paid in full and the property is released from the lender.
In a reverse mortgage, the home owner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments or a bulk payment of the available equity percentage for their age, then the debt on the property increases each month. For some borrowers this can create quite the quandary.
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A mortgage pre-approval will eliminate any doubts the home seller could have that you can financially afford to buy their home, thereby making your offer stronger than someone who is not pre-approved. A mortgage pre-approval is especially important in this competitive real estate market, where often there are multiple offers on homes for sale. One of the benefits of being pre-approved for a home loan is that you know exactly how much you can afford to pay for a home before you enter into a purchase agreement.
Adjustable Rate Mortgage
If you have an Adjustable Rate Mortgage (ARM) now, refinancing with a fixed-rate loan can give you more monthly payment stability.
ARMs determine what you must pay based on an outside index, perhaps the 6-month Certificate of Deposit (CD) rate, the one-year Treasury Security rate, the Federal Home Loan Bank’s 11th District Cost of Funds Index (COFI), or others. They may adjust every six months or once a year.
Most programs have a “cap” that protects you from your monthly payment going up too much at once. There may be a cap on how much your interest rate can go up in one period — say, no more than two percent per year, even if the underlying index goes up by more than two percent. You may have a “payment cap,” that instead of capping the interest rate directly caps the amount your monthly payment can go up in one period. In addition, almost all ARM programs have a “lifetime cap” — your interest rate can never exceed that cap amount, no matter what.
ARMs often have their lowest, most attractive rates at the beginning of the loan, and can guarantee that rate for anywhere from a month to ten years. You may hear people talking about or read about what are called “3/1 ARMs” or “5/1 ARMs” or the like. That means that the introductory rate is set for three or five years, and then adjusts according to an index every year thereafter for the life of the loan. Loans like this are often best for people who anticipate moving — and therefore selling the house to be mortgaged — within three or five years, depending on how long the lower rate will be in effect. This Calgary Mortgage Broker definitely recommends Adjustable Rate Mortgages when this is the case.
You might choose an ARM to take advantage of a lower introductory rate and count on either moving, refinancing again or simply absorbing the higher rate after the introductory rate goes up. With ARMs, you do risk your rate going up, but you also take advantage when rates go down by pocketing more money each month that would otherwise have gone toward your mortgage payment.
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