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Often consumers in the senior age bracket query what is a reverse mortgage and what purpose if any does it serve. Before analyzing reverse mortgages, one must bear in mind that reverse mortgages are available to senior citizens and enable them to release any used equity in their property.

Reverse Mortgage Information: How Does It Work

With a regular mortgage loan, the mortgagee makes monthly contributions and that regularly reduces the balance of the loan. At the end of the 30 years, the loan is paid off and the property is released from the holding of the bank or finance company. In a reverse mortgage however, the borrower makes no repayments on the loan. The loan repayments or interest payment are allowed to capitalize and they keep adding to the balance of the loan. On the death of the account holders the house is sold and the sales proceeds are transferred to the bank which had given the borrowers the reverse mortgage.

Requirements For Reverse Mortgage for Seniors

In order to qualify for a reverse mortgage loan, a borrower must be at least 62 years old. While there are no specific income or credit rating requirements stipulated by the Department of Housing and Urban Development (2), it may be beneficial for the applicant to check whether they qualify for the loan in the first place. In addition to this, should the borrower have any pending bankruptcy charges etc, it may slow down the entire reverse mortgage process. Securities such as mobile homes and caravans are acceptable in a reverse mortgage, however they need to meet certain conditions.In a reverse mortgage loan, the client takes out a mortgage on the appreciated value of the house and can get the equity amount paid to them in either installments or in a lump sum. The funds can be used at the customer’s discretion, but prior to that the customer needs to pay out the existing mortgage as the reverse mortgage can be the only mortgage on the property.

It may be noted that not all securities are acceptable as security in a reverse mortgage for seniors. The HUD usually recommends that the borrower should seek independent advice from an HUD approved source in order to completely understand the implications of a reverse mortgage. Recently the maximum loan limit on a reverse mortgage was raised to $625,500. In the year 2008 the limit was $417,000. Another point to bear in mind is that the lender can charge the client a maximum of $6,000 as loan origination fee.

Reverse Mortgage Calculator

In order to determine the amount of money available to a consumer, the following factors are taken into consideration by a reverse mortgage calculator:

• The age of the applicant
• The valuation price and condition of the house and if any repair work is required on the property.
• The interest rate as determined by the US treasury.
• The property value in question, and
• The type of advance, whether it is a lump sum or a revolving credit instrument.

Having taken these factors into consideration the total annual lending cost for the reverse mortgage is calculated. In addition to this it must be remembered that the amount of money received from a reverse mortgage is not taxable.

Hence it is very essential for the consumer and family members applying for the reverse mortgage to completely understand the scope and implications of a reverse mortgage prior to applying for one. While a reverse mortgage loan can be very beneficial and a last resort solution it can also have severe implications on the remaining family members of the applicant after the applicant’s death.

References:

1. Appendix 22 – U.S. Department of Housing and Urban Development
2. Top Ten Things to Know if You’re Interested in a Reverse Mortgage - U.S. Department of Housing and Urban Development

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Home Equity Loans, also known as HEL have gained a lot of popularity in the past few years. These home equity mortgage loans are a good way to fund expenses such as improvements and repairs around the house or unexpected bills or even higher education. Home equity loans are often a second mortgage on your property and consequentially reduce the equity component in your house. HEL’s in addition also create a second lien/charge on your property. One must however remember that in order to be considered for a home equity loan it is a given that the consumer must have good to excellent credit history.

Equity Home Loan Information: How Does It Work

Take a look at the diagram above. In this scenario when the home equity mortage loan was taken out, the entire house was valued at $500,000. The consumer contributed $100,000 towards the purchase of the property and borrowed the remaining $400,000. Now let us take a look at the value of the property value and the loan situation after 5 years: In this case after valuing the property after 5 years the value has increased to $750,000 thereby giving the consumer equity in the property of $350,000. The client can borrow against this equity. Once the client approaches a bank or a lender, the lender will value the equity property and will calculate the equity the client has in his/her property in the same way will lend funds against that amount. This new lend will create a second or a third mortgage on the property as the case may be. It must however be remembered that equity in a property is not always positive. It can in a lot of cases during a market downturn as we have just experienced, be negative. Consider the above example, if after valuing the property after 5 years, the value had fallen to $350,000 from $500,000, the client would have negative equity in the property of (350,000-400,000 = – $50,000) negative $50,000.

Equity Home Loans Types

Home Equity Loans can be of two types:

1. Open End Home Equity Loan: In this type of a home equity loan the lender creates a line of credit (revolving credit) for the consumer and the client can borrow as much as is required and when required. The interest on this charged only on the used amount of the line of credit.
2. Closed End Home Equity Loan: In a closed end home equity loan the lender gives the client an entire lump sum amount. The interest is fixed on these loans and they can be amortized over 15 years over the life of the loan.

Advantages of Equity Loans

Some of the advantages of home equity loans are:

• One of the main advantages of a home equity loan is that the loan amount can be used for any purpose as deemed fit for the client.
• Another advantage of HELs is that the interest component of the home equity mortgage loan can be tax deductible based on which tax bracket you fall under and also the purpose of the loan.
• In addition to this depending on whether or not you have a Line of Credit as your home equity loan, you can draw the funds as and when required.

Disadvantages Of Equity Loans

While home equity loans come with a host of plus points, there are some disadvantages worth considering as well.

• The primary disadvantage of a home equity loan is that it increases the repayments on your home loan and can place your mortgage account in danger of arrears and consequently of a foreclosure.
• Another disadvantage may be the fact that with the increased repayments you may disadvantage yourself from being able to borrow in the future owing to reduced servicing capacity. Increased payments may also cause you to miss payments and therefore affect your FICO score.
• In a lot of cases during market downturns you could actually end up owing money rather than having equity in your house owing to the fact that your property was undervalued due to existing market conditions.

As with any loan it is always prudent to take into consideration your financial position. While home equity loans have a lot of advantages, they also have certain disadvantages. It is essential to weigh both pros and cons prior to making a decision regarding the same. Before making a decision on whether or not to get a home equity consider your long and short term financial goals and its possible consequences.

Reference:

1. What Home Equity Debt Is – Bank Rate

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Consumers generally tend to be of the opinion that once an individual has been declared bankrupt, it spells the end of the road for them as far as new credit contracts are concerned. This is not quite true. Nowadays it has become much easier for an individual to obtain an after bankruptcy home loan. However it must be remembered that there are a few factors you should consider prior to applying for a new home credit loan.

Getting A Home Loan After Bankruptcy

At the very outset you should remember that once you have been discharged from bankruptcy it is best to wait for at least 2 years prior to applying for a bankruptcy morgage loan.  If however you do decide to apply for a after bankruptcy home loan prior to the 2 year gestation period, ensure that you have flawless repayment history and that all your contractual obligations associated with the bankruptcy have been paid and are up to date. Once the 2 year wait period is up it is fairly easy to get a bankruptcy mortgage loan and in certain cases you can even get up to 100% finance. Lenders when considering bankrupt client applications look at the following things:

• Repayments history post discharge from bankruptcy.
• Timely payment of all financial obligations related to the bankruptcy, especially government debt if any.
• Source of deposit for property.
• Employment and stability of income.

These are a few things which lenders keep a close eye on. One thing that you might have noticed is that lenders nowadays are very particular about the source of the deposit on the property. This is particularly important owing to the fact that in the past clients have tried to defraud banks when getting a home loan after bankruptcy by misstating the source and details of the deposit. If your bankruptcy mortgage loan deposit is from a relative, the banks might need you and your relative to get a signed statutory declaration stating that the funds are a non-repayable gift. This is done so that the bank is satisfied with the source or else it will also constitute another loan or credit contract.

Home Loans With Bankruptcy – Tips

Applying for an after bankruptcy home loan is not the same as applying for a regulr home credit loan. Listed below are a few tips to help set yourself up well for home loans with bankruptcy, after you have been discharged from bankruptcy. This should ensure that you are in a good position while applying for a after bankruptcy home loan.

• Budget: One of the most important things post bankruptcy is budgeting. Take into account all of your fixed overheads. Then take your income and subtract your expenses from it. This will give you a residual surplus which you can use to start a savings pattern or use to reduce bills faster before you apply for an after bankruptcy mortgage loan.

• Rectify Mistakes On Your Credit Report: Quite often consumers emerging from bankruptcy find that there are still a number of accounts which appear as delinquent, overdue or open on their credit reports when in fact these should actually be closed and are credit report errors consumers are often unaware about. Take these issues up with the appropriate credit bureaus and try and resolve them as soon as is possible. This will ensure that your credit report looks a lot healthier when applying for a home credit loan.

• Apply For Small Chunks Of Credit: By applying for small amount of credit you will put yourself in a position to repay these small loans like car loans and personal loans a whole lot sooner and thereby build your repayment history and increase your credit score. This will work in your favour when applying for a bankruptcy mortgage loan.

• Use Your Credit Card Sparingly: Having a credit card and using it only as required is another way to build up your credit score as discussed in the post about credit card balances. When you use your credit card sparingly and pay out the credit card debt in full each month, this adds a lot not only to your credit score but also your repayment history, making it possible for lenders to trust you when you apply for a bankruptcy home loan.

Consumers must remember that your bankruptcy might be on your credit report for a period of 10 years, but it will not be there forever. It will eventually come off and your credit report will go back to being normal. It is prudent to ensure that all your bills are up to date and that you are trying to build your credit report every step of the way. With these simple steps consumers who have just been discharged from bankruptcy should have no problem applying for an after bankruptcy home credit loan.
References:

1. Bounce back fast after bankruptcy – MSN Money
2. Personal Loan after Bankruptcy - The Dolar Stretcher

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You definitely need a sound credit record to make your financial life run the way you want it to run, but it is also a fact that most of  people have some kind of bad credit that clings to their credit report like an incurable disease. You can’t succeed to get loans, buy a vehicle or get approved for a home loan if your credit record is not quite good. Usually, lenders review your credit report whenever you apply for home loan, credit card, car loan etc.

The three major credit agencies that are also known as credit bureaus get information about consumers and sell the information to those who want to know about your credit record. The others can easily view information related to you whenever you apply for some loan or job. Credit agencies attain your information from all those creditors who have done some business with you. Your report is sent to credit report bureaus to review if you get defaulted. If you want to block some information to and don’t want them to appear in your credit report, you need to adopt a nip in the bud policy and contact with your lenders regarding such information instead of beating a path when such information become a part of your credit report.

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There are only a few who were not defaulted on some loan or never got late on some bills. In short, almost everyone has one or two black marks on their credit report and these black marks often feel quite irritating. You may have to pay more interest rates on your credit cards’ balances, you may get refusal to your home loan or pay have to pay high insurance premiums because of these very black marks. Everyone wishes to have some magical power to suppress or remove these negative things from their credit report. There is no such magical power except concert efforts to suppress these negative items from your credit report. If you are also struggling with some negative items on your credit report and want to suppress them at your earliest, here are some steps that you need to be taken.

Can you fix or suppress something from your credit report that you don’t know about? Mull over it, well, your first and foremost step is to find out what is really negative in your credit report. This is the easiest part of the whole fixing process, but most of people are not quite attentive to it. You can easily get a free copy of your credit report and check out the negative or wrong information in it.

If you find some negative item or information provided by the company which has given you credit in previously, you can dispute these information and can ask the credit agencies to remove these incomplete or inaccurate information from your credit report. The three credit report agencies allow you to commence an investigation in this connection by filling those forms that are available on different websites. You can also mail them a dispute letter or call them for it. It doesn’t matter a lot the way you contact them, however, it is quite important to document each and everything whatever you provide them as proves.

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