Secrets of the Unmortgage

If you're approaching retirement age, own a home, and are considering how best to make ends meet after you leave work, the idea of a reverse mortgage has probably crossed your mind. For those who haven't yet heard about it, a reverse mortgage is pretty much what it sounds like -- a way for seniors to convert home equity into a monthly income, a lump-sum payment, or a line of credit. Reverse mortgages are offered by Fannie Mae (NYSE: FNM), as well as by specialist lenders and traditional banks such as IndyMac Bancorp (NYSE: IMB) and Bank of America (NYSE: BAC).

Unlike regular home-equity loans, reverse mortgages are available only to seniors, and there's usually no requirement to make any payments until you die or permanently move out of your home. If you're not sure your nest egg will be enough, or if you own a home and want to raise your standard of living during retirement, a reverse mortgage should be on your list of options.

The basics
To be eligible, you and all co-borrowers (typically, this includes everyone named on the deed to your home) need to be at least 62 years old. You need to own your home outright, and you must be living in it. (If you still have a small balance on your mortgage, you can usually pay it off as part of the reverse mortgage process. The lender will require that the reverse mortgage be the primary loan on your home.) The amount you can borrow is determined by a formula that takes into account the age of the borrowers, the appraised value of your home, and Federal Housing Administration guidelines for your region. (You can estimate how much you'd qualify for with the calculator at this site.)

The FHA regulates reverse mortgages, and its rules provide that as long as you abide by the loan agreement, you can't be forced to give up your home -- even if property values fall and you end up owing more than your home is worth. (The FHA insures lenders against loss.) When you die, the loan comes due, at which point your heirs can either sell the home or refinance the loan, meaning they'd get a regular mortgage to pay off the reverse mortgage.

Key considerations
For some seniors, a reverse mortgage makes a lot of sense. But before you run to the bank, here are some considerations:
Can you delay getting the reverse mortgage? The longer you wait, the more home equity you're likely to have. Also, given that reverse mortgages have an actuarial component -- the terms take into account how long you're expected to live -- waiting several years will usually increase the amount you'll be able to borrow.
Consider the fees. Fees for a reverse mortgage are typically higher than those on a regular mortgage -- as much as 12% of the amount borrowed, though competition is expected to drive fees down over time. These fees cover the additional risks assumed by the lender (like if you live longer than expected or your house declines in value). You can usually finance them as part of the loan, but that will reduce the amount you end up borrowing.
Consider your estate plan. If it is important to you to leave your house to heirs, weighing whether they'll be able to repay the reverse mortgage may be a consideration. While as a general rule, I recommend that you consider your needs first and the needs of heirs later, for some people it's very important to know that their family property will stay in the family.

If you're considering the reverse-mortgage option, check out the Fool's Home Center for more details. In addition, you can find a great article in last December's issue of our Rule Your Retirement newsletter with much more on how to look at reverse mortgages. You can read it free with a 30-day trial. But the most important thing to remember is this: If you can wait longer before taking a reverse mortgage, it's usually best to do so.

To read more about reverse mortgages and get much more expert advice to help you retire well, try the Fool's Rule Your Retirement newsletter service free for 30 days. Your trial includes access to all back issues -- look for Doug Short's reverse mortgage articles in the March 2006 and January 2007 editions -- as well as all current content, planning tools and calculators, and a special members-only message board. Sign up for a free trial and see for yourself -- there's absolutely no obligation.

Fool contributor John Rosevear has many years of payments left on his regular mortgage, and hopes not to need a reverse mortgage for a long time. He does not own any of the stocks mentioned in this article. Bank of America is an Income Investor selection. Fannie Mae is an Inside Value recommendation. The Motley Fool has a disclosure policy.

By : John Rosevear

Via : www.fool.com

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Home Improvement, Home Equity in disguise

When you want to improve your home, the cost of materials and various expenses begin to add up to enormous sums. You want to get it done all in one go, instead of spending six months or more with sand, sawdust and a stink of paint all over the house. Solution, a home improvement loan.

It’s A Long Deserved Prize

You and your family deserve this treat, after waiting for a number of years. The kids have grown up, but their marks on the walls, doors and ceiling are still there. So, you begin to make plans.

The first question you ask yourself is where to get the money from. It is good advice to avoid grabbing a loan, first off.

However, it certainly will make you feel that you can get by without asking for anyone’s help. So, what type of loan? One that is ideal in this case, is a home improvement loan. It works in a similar way to the home equity loan, but since the purpose is fixed and a very special one, it will also be a special loan.

Home Equity In Disguise

The security for this type of loan is the equity on your home. So, considering that not only is it a low risk loan for the lender, but in addition, the property itself will acquire more value before the payback period is over, the conditions are even better than for a home equity loan. As a consequence, the equity will be higher before the payment term is over.

The General Considerations

Always give yourself a couple of days to inquire about the conditions that a serious, reliable lender will be willing to give you, for your case in particular. So give detail of your financial situation and credit report when you ask for a quote.

Preparing Your “Pitch”

Prepare well-laid-out plans of all the changes or additions you want to make. This will give your lender the idea that you are organized and don’t do things in a hurry. Accompany a budget of the whole operation. Materials, plans, supervision and any special permit that your local City Hall might require.

A Good Image

All this contributes to a better image and therefore a better negotiation capacity. Prepare your meeting in advance. Not necessarily word by word, but all the points you want to ask for and everything the lender might oppose to them. Special length, no fee, fee spread out throughout the term, APR and all you can think of.

Skip Payment

In some cases, say, for a long payback term, the lender might allow you to skip a payment, considering annual vacation and/or Christmas. The only thing this does is that it lets you skip a payment, that’s all. The term is lengthened in one month, accumulating one month more of interest.

Plenty To Chose From

You’ll find Internet full of loan advertising and there will always be one just right for you. If you have any doubt or want to test yourself, first ask a lender you will NOT take a loan from. Once they give you an answer, go to the lender and ask the same question, with a negotiating edge… your creativity goes on from there.

by Kate Ross

Via : www.americanchronicle.com

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Should a home-equity loan be used to pay off credit-card debt or loans?

Walter L. Koon Jr.
Koon Financial Planning & Consulting
In some cases a home-equity loan, also known as a second mortgage, offers a way to lower your interest cost and to spread out your payments.
Interest rates for a home-equity loan may be less than half of the rates charged by credit-card companies. Lowering the interest cost on your debt can be a factor in paying the loan off sooner.
To qualify for a home-equity loan, you must own or be buying your home, have a satisfactory credit record and have sufficient income to make the payments.
Borrowing money against your biggest asset to "pay" credit cards really isn't paying off anything, just exchanging debt for debt. If you are not willing to quit adding to your debt burden by giving up your credit cards, you may find yourself with big credit-card bills and no equity in your home.
Here are some things to keep in mind:
• Know if the rate will be fixed or variable.
• Credit insurance, if required, may increase the loan's total cost.
• A line of credit offers flexibility to pay more or less, but also can lure you into borrowing even more.
• Watch for additional fees and charges.
• Establish a maximum amount that preserves some equity in your home.

Ed Snyder
Oaktree Financial Advisors
Definitely maybe.
Conventional wisdom would tell us yes because the interest is deductible from your taxes. But interest rates on home-equity loans have risen in the last couple years and competition in the credit-card business has heated up, so it's not difficult to find credit-card offers on balance transfers with low interest rates for the life of the balance.
So if you run the numbers with a lower credit-card interest rate, you may save more money even without the tax benefit of the home-equity loan.
You need to do your homework and make sure the interest rate is locked in for the life of the balance. Beware the zero percent interest introductory offers. They're often only good for 12 months and then jump to 18 percent or more.
Also, don't forget to factor in the balance transfer fee. A lot of cards will cap it at $75, but make sure first. And if you do transfer balances to a lower-interest credit card, cut up the new card and don't put any new purchases on it.
No matter what you do, it doesn't correct the behavior that got you into this situation.
If you move the debt to a home-equity loan or transfer it to a new card, it leaves your original credit-card balance(s) at zero, meaning you can go charge them up again. If you do that, you'll be facing a bigger problem down the road.

Kevin Clasen
West Point Private Client Group
It is common for Americans to turn to their home equity to relieve the stress of debt. Many times this strategy merely puts a Band-Aid on the problem.
The real root of the problem many times is overspending. No amount of juggling of the structure of debt can eliminate the requirement to pay off the debt.
If you do find yourself in a situation where you need to do something, using home equity can be a good option. Most people use their home equity as it has become easier to tap into and it may be tax-deductible.
This can be the Band-Aid you are looking for. But if your spending habits don't change, you most likely will find yourself back at the same place soon.
There are many sources of learning about how to use money -- from self-help materials, financial advisers, and even churches.
The resources are endless. However, you just need to make the decision to ask for help.

• Walter L. Koon Jr. is a certified financial planner in Greenwood and Bloomington.
• Kevin Clasen is a certified financial planner.
Via http://www.indystar.com

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Home Equity Loan Lines of Credit vs. Credit Cards - Which is Better? The Mortgage Store Online Report

The Mortgage Store Online has released an exclusive report on the rate and payment benefits of home equity loan lines of credit, compared to the use of credit cards. This report is directed at North American (U.S. and Canadian) homeowners and potential borrowers, who are looking for low interest credit options.

Toronto, Ontario (PRWEB) June 12, 2006 -- The Mortgage Store Online today released an exclusive report on the rate and payment benefits of home equity loan lines of credit, showing them to be the much better option for U.S. and Canadian potential borrowers looking for low interest credit options, compared to the use of credit cards.

Currently, the interest rate for home equity lines of credit is vastly lower than the interest rates that leading credit card companies in North America offer. According to BankRate.com, lowest US rates for home equity loan lines of credit presently average out at 6.31% and the Canadian rates come as low as 6%.

These home equity rates sit much lower than credit card rates from the most popular credit card companies - MasterCard, and American Express.

* Home equity loan line of credit rates are 11.98% and 13.49% LOWER than a MasterCard credit card for U.S. and Canada, respectively. (The current interest rate for MasterCard is 18.29% for U.S. and 19.49% for Canada.)

* Home equity loan line of credit rates are 11.93% and 12.99% LOWER than an American Express credit card for U.S. and Canada, respectively. (The current rate for an American Express card is 18.24% for U.S. and 18.99% for Canada.)

Although the results of this report may surprise first time borrowers, Joe Janovich, President of The Mortgage Store Online says that this is not a new trend. "Home equity loan line of credit rates are almost always significantly lower than those of the credit card. It has been this way for many years. The real surprise that comes with this report is the number of people who aren't taking advantage of this line of credit."

Saving Tens of Thousands of Dollars

US borrowers who choose a home equity loan line of credit over a MasterCard can expect to save $26,316 for every $10,000 increment, over 25 years using the current rate of 6.31%, and Canadian borrowers can expect to save $28,116 on the same amount with Canada's rate of 6%. "Although it may seem strange to borrowers that they could save around 'twenty' thousand dollars on a mere 'ten' thousand dollar loan, the effects of interest compounding over 25 years creates a debt that greatly exceeds the original borrowed amount, especially with credit card rates that are as high as 18%," states Janovich.

The Monthly Savings

With a home equity line of credit, US borrowers would pay $66.34 a month, and Canadians $63.98 a month, on each $10,000 amount they use from the credit line. However, with most credit cards, the minimum payment alone would be $300/month on the same borrowed amount, as most credit card companies require card users to make minimum monthly payments that equal 3% of their current card debt.

Overcoming Misconceptions About Home Equity Lines of Credit

Janovich also understands that both Americans and Canadians have many misconceptions about home equity lines of credit, that lead them to choose the credit card instead. "These misconceptions make people lose out on tremendous savings. It's important that brokers and banks debunk the myths that place credit cards on a pedestal. By properly understanding and utilizing home equity lines of credit, North Americans can save money and keep their debt to a minimum."

In order to clarify and discredit the rumors about home equity loan lines of credit, The Mortgage Store Online has provided the following articles to educate both US and Canadian borrowers:

* Monthly payments on home equity loan lines of credit are lower than credit card minimum payments

* Larger borrowed amounts come from home equity lines of credit

-- Proof of income not necessary for home equity loan lines of credit

-- Broker fees do not make home equity loan lines of credit more expensive than credit cards

-- Home equity line of credit, defined

About the Mortgage Store

The Mortgage Store Online provides home and commercial mortgage loans in most Canadian provinces (excluding Quebec and the Territories), along with mortgage news and advice for all of North America. Founded by veteran mortgage broker Joe Janovich, The Mortgage Store Online couples 'real world' experience, industry relationships, customer service and secure technology with the convenience of the Web. Learn more about The Mortgage Store Online's home equity loan services and mortgage line of credit options by calling (866) 880-2577 or visiting www.themortgagestoreonline.com

The Mortgage Store Online
Sarah Janovich
866-880-2577
E-mail Information
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