Three Basic Types of Reverse Mortgage Loan Products
With the popularity of Reverse Mortgages, it is probably a good time to understand what exactly is a Reverse Mortgage. Oddly enough some people think it is nothing more than a bank buying your home. I would have to agree on the practical level there’s a great deal of truth in that. But I guess it’s also true that the bank owns your home with any mortgage. Many people understand the difference between an Adjustable Rate Mortgage, (ARM), and a 30 Year Fixed; in comparison I would like to take a look at the various Reverse Mortgage Products.
There are three basic types of Reverse Mortgages. The first one is a Single-Purpose Reverse Mortgage. These are offered by some state and local government agencies, and non-profit organizations. They are the least expensive option in terms of the total costs of the loan, but they do come with the drawback in that they are not available everywhere and they do have restrictions as to what the loan may be used for, as specified by the lender. For example the proceeds may only be used for taxes, home repair or home improvements. Homeowners with low to moderate income can qualify for most Single-Purpose Reverse Mortgages.
The second is the Federally-Insured Reverse Mortgage, which is also known as the Home Equity Conversion Mortgage, or HECM (pronounced Hekum). The HECM is backed by the U.S. Department of Housing and Urban Development (HUD). These types of reverse mortgages are more expensive than traditional mortgages with closing costs running as much as $8,000 for a $300,000 loan amount. However HECM Loans are widely available, have no income or medical requirements, and they can be used for any purpose.
Before applying for a HECM, you must meet with a counselor from an independent government agency to review all the financial details of the loan. HECM Loans can be a bit more complicated as several factors go into the loan amount such as your age, type of payout, market value of your home and current interest rates. A HECM can be paid out as lump sums, lines of credit, fixed monthly cash advances or a combination of the various types.
And finally there are Proprietary Reverse Mortgages, which are private loans backed by the entities that develop them. Proprietary loans are more along the lines of a business making a sound decision. These loan products can make more sense, by having additional value when your home has substantial equity and you elect for a lump sum disbursement, as you may qualify for higher loan values. Similar to the HECM Loan, Proprietary Reverse Mortgages also take into account factors such as the age of the borrower, current interest rates, and home values.
I remembered when I applied for my first mortgage and the infamous ARM was introduced as a possible option. This product would allow my wife and I to borrow an additional $15,000, subsequently getting us into our first home. I am sure as we grow older, put our children through school, weddings, (Yes I have three girls), and take care of any other financially unplanned events, that the time will come when my wife and I will apply for a Reverse Mortgage. Looking at the traditional forward mortgages available today, (or perhaps that were available two years ago), that the Reverse Mortgage product offering will be just as prolific in years to come. Understanding the basics now, will set a solid foundation the future.
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August 12th, 2011 at 5:32 am
Good informative stuff!
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[...] Subordinating Second Mortgages » CCJ Remortgage – Mortgage Information#header_stallion{background-size:1000px 130px;background-image:url(http://www.ccjsremortgage.info/main/uploads/2011/12/cropped-12.jpg)}Reverse Mortgage: Find reverse mortgages, lenders, and information#igit_rpwt_css{background:#FFF;font-family:verdana,arila,serif;font-size:12px;font-style:normal;color:#000 !important;margin-top:10px;margin-bottom:10px}#igit_rpwt_css h4{color:#000;font-family:Arial}#igit_title{padding:2px 2px 2px 0px;font-family:Arial;font-size:12px}#igit_title a{color:#000;font-family:Arial;font-size:12px}#igit_rpwt_thumb,#description{margin-left:0px}.igit_relpost:hover{background-color:#DDD}#igit_rpwt_main_image{float:left;height:105px;line-height:15;padding-bottom:10px;padding-right:2px;padding-top:2px;text-align:left;width:120px}#igit_rpwt_css ul{margin:0}#igit_rpwt_li{cursor:pointer;list-style:none;border-bottom:1px solid #EBDDE2;padding:5px 5px 10px 10px !important}#igit_rpwt_li:hover{background:#DDD}div.simplesocial,a.simplesocial{float:left;display:block}a.simplesocial{margin-right:5px;width:32px;height:32px}a.simplesocial:hover{margin-top:-2px}function simplesocial(t,w,h){window.open(t.href,'simplesocial','scrollbars=1,menubar=0,width='+w+',height='+h+',resizable=1,toolbar=0,location=0,status=0,left='+(screen.width-w)/2+',top='+(screen.height-h)/3);return false;}#header_stallion_2011_top{position:absolute !important;clip:rect(1px 1px 1px 1px);clip:rect(1px, 1px, 1px, 1px)}.broken_link,a.broken_link{text-decoration:line-through} CCJ Remortgage – Mortgage InformationTypes of Remortgage Subordinating Second MortgagesPosted on January 29th, 2012 in Glossary Of Mortgage Terms Homeowners often decide to refinance their first or senior mortgage on their home to take advantage of a low interest rate climate or other attractive loan terms. In this case, the second mortgages on these homes may be paid off, included in the refinance plan or subordinated. What is subordination?Subordination refers to a process by which second mortgages continue to remain in second place or as a junior lien when the original first mortgage is replaced / refinanced with a new one. This means that the lender of this mortgage will still come only second in line in case the borrower defaults and the property has to be foreclosed to repay debts. Normally, when a home buyer buys a house, he takes a loan to cover the major portion of the home value through a mortgage that becomes the first or senior mortgage.A second mortgage may be taken at a later date either to avoid PMI or to cover other expenses. When the borrower decides to refinance his first mortgage, the second automatically takes its place to become the primary mortgage. This happens because this second loan originated before the most recent once, that is taken to replace the first mortgage. The borrower may wish to keep his second mortgage in status quo position as a secondary lien on the house. To do this, he subordinates the second mortgage. Advantages of SubordinationBorrowers opt for subordination to take advantage of the benefits it offers. The second loan remains untouched so that the new first mortgage amount can be a lower amount resulting in smaller debt. When the borrower is refinancing into a cheaper or longer loan because he could not afford the original one, this is very beneficial. By subordinating the second mortgage, the borrower avoids having to pay it off or include that amount in the new refinance loan. If the second mortgage is a HELOC, and the entire line of credit has not yet been utilized, subordinating it gives cost savings. The borrower can still continue to use the same loan rather than incur closing costs on it and processing costs on a new one. Subordination process Following the many cases of default during the recession, lenders, especially banks, are now very cautious about refinancing housing loans. Your refinance lender may insist that you subordinate your second mortgage. In this case you will have to notify your second mortgage lender and get his acceptance. When you want to opt for subordination for other reasons, it is legally required to be approved by the first lender. The process begins with your sending the subordination agreement to the second lender and getting it signed by him. This acceptance has to be passed on to your new first mortgage lender so that the new loan process is completed. Although it is not a complex process to subordinate second mortgages, it can be time consuming. Eliminate any possible delays by making sure that you intimate your second lender of your intention well in advance. Some lenders may refuse to sign the documents citing depreciation on home value or other reasons. In such cases, you will have ample time to look for a new second mortgage or negotiate with the lender provided you give an advance intimation. Table of Contents View mortgage subordination Review mortgage subordination Video Interesting mortgage subordination What are Twitter users saying about this mortgage subordination? 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