Archive for August, 2010

15 Year Mortgages Back in Style

Tuesday, August 31st, 2010

You’ve seen the headlines: 30-year fixed-rate mortgage rates are at record lows. What’s getting less attention, however, is that 15-year rates (and most other mortgage rates, for that matter) are also at record lows. According to the most recent , the average 15-year fixed rate is now only 3.86%, exactly 50 basis points below the average 30-year rate. It carries lower fees/points, too.

While this trend is being ignored by the media, borrowers have taken notice. In the first half of 2010, “ who refinanced chose a 15-year fixed-rate mortgage…During all of 2009, 18.5% of borrowers who refinanced opted for a 15-year term. About 9.4% did so in 2007.” While comparable figures aren’t available for new mortgages (i.e. not refinancings), anecdotal reporting suggests a similar trend, though perhaps not quite to the same extent.

15-year mortgages have always been more appealing to refinancers. That’s because for those obtaining a new loan, the difference in the monthly payment between the 30-year and 15-year loan can be overwhelming or even unaffordable, since it is more likely to exceed industry Loan-to-Income limits. When the mortgage is refinanced, however, it is likely that the principal will be lower (as a result of many years of payments) and hence, the higher payment under the 15-year loan is less likely to be an obstacle. In addition, by refinancing from a 30-year loan into a 15-year loan, you probably won’t ultimately shorten the effective duration of your loan by that many years. For example if you wait 10 years to refinance from a 30-year loan into a 15-year loan, you will ultimately pay interest for 25 (15 + 10) years, which is not significantly different from the original duration of 30 years.

The savings from a 15-year loan (compared to a 30-year loan) can be substantial. Not only does interest accrue at a lower rate, but there are aggregate savings in interest from repaying the loan over a shorter duration. On a $250,000 loan, for example, you can expect to save $150,000 over the life of the mortgage, based on current rates. On the other hand, as I mentioned above, the monthly payment will rise by around 25-50%. For some, the increased pressure from having to make a larger payment each month offsets the overall savings in interest.

As a compromise, some financial planners recommend clients obtain a 30-year mortgage, and simply make larger payments on them each month, for as long as it is affordable. This way, borrowers can still achieve interest savings over the life of the mortgage, while still retaining the flexibility to make the lower required payment in the event of financial hardship. However, it’s important to understand that the price paid for this flexibility is a higher (i.e. 30-year) mortgage rate.

For those of that are considering a 15-year mortgage, you can use our to determine the difference in monthly payment and overall savings, compared with a 30-year mortgage.

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How do the seniors spend their reverse mortgage income?

Tuesday, August 31st, 2010

With reverse mortgage loans, real estate practitioners and property owners have lots to gain. Cash-trapped seniors are able to remain in their homes with the help of their equity while real estate associates can earn goodwill and future referrals for seniors who are not yet ready to sell. There are many kind of mortgages but reverse mortgages enable homeowners to receive payments from a lender as a lump sum, line of credit or fixed monthly payment.

There are multiple benefits of reverse mortgage loans only when the last remaining borrower dies, sells the house or permanently shifts residence. For seniors who are financially tight, it is a great alternative in being able to remain in their homes. These loans also offer a valuable income source for property owning seniors lacking liquid assets. But this option is not for everybody. The income from this loan is not subject to tax and can be used for various purposes. If you are lacking information on how to use the proceeds of this loan, then Have a look the reasons to educate yourself.

*For home repairs or home improvement: If you are a senior citizen and you do not have enough money for repairing your already dilapidated home, then you can take out a reverse mortgage loan. The money that the lenders pay you in the form of monthly installments or a lump sum amount can be utilized for home improvement purposes. The condition of your home is taken into consideration before you take this loan. They make sure that the home’s market value does not depreciate. That’s why seniors often take out a mortgage loan against their equity to use for home improvements.

*To pay off debts: It may happen that you have incurred a huge amount of debt load but you do not have enough money to pay off debts. There are many debt relief options available that help you repay your debts in affordable monthly payments. But all the debt relief options charge a certain amount from you in lieu of these services. Thus you need to have that money in order to repay your debts through a professional debt help company.

*For long term health care: It may happen that you’re suffering from some disease and you do not have the adequate amount of money for the treatment. Money problem may arise at any point of time in ones life. But the reverse mortgage relieves you of the tension of financial crunch. By taking out the method, you can access easy cash and utilize it in your long-term health care costs.

*For not withdrawing from retirement accounts: Almost all seniors can withdraw money from their retirement account. But this may have an adverse impact on their tax benefits. Early withdrawal may subject you to some penalty fees. Thus, to avoid this, most seniors take reverse mortgage against their home equity so that they do not have to waste their retirement account by liquidating them prior to the maturity date.

Senior citizens have a powerful means of enhancing income with this kind of loans. This money can provide seniors financial security that’s necessary for real enjoyment for retirement years.

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