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Spencer for Hire :: Reverse It

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What is a Mortgage? In the mortgage industry, we define it as: “a loan to finance the purchase of real estate, usually with specified payment periods and interest rates.

The borrower (mortgagor) gives the lender (mortgagee) a lien on the property as collateral for the loan. This definition is pretty straightforward and simple, right. Now let’s consider the origination of the word mortgage. Mortgage comes from two Latin words, the first being mortuus which means “death”. The words morgue and mortuary come from this same Latin word.

The second is gage meaning “grip”. DEATH and GRIP! A death-grip. Wow, this sure does explain why some of us are afraid to buy a house. It also explains why month after month we do whatever we can to avoid fulfilling its Latin meaning on our household budget.

James R. De Both, President of Mortgage Market Information Services, Inc. writes, when you retire, your house maybe the biggest asset you own, but the hardest to cash in. You don't want to take out another mortgage and make monthly payments at this time in your life. Do you have to sell the house to get your money out? In 47 states the answer is no. You can get a reverse mortgage home equity conversion loan. "It allows seniors to turn equity into cash and stay in their home," says Dan Farnesi, Director of Sales for Household Senior Services, a part of Household Bank.

A reverse mortgage allows you to access money, which is not required to be paid back until you leave the house, or it's sold (either by you or your estate upon death). The loan balance, which includes draws against the credit line plus interest charges, grows as a portion of the homeowner's equity. Draws are considered tax-free advances. Plus, reverses are "non-recourse" loans, meaning the amount you owe can never be more than the value of the house.

The amount of equity that can be borrowed is determined by the value of the house. A person aged 75 with $100,000 equity can usually borrow twice as much as someone aged 75 with $50,000 equity.

Age is another part of the equation. Bronwyn Belling from the American Association of Retired Persons (AARP) says that younger retirees should put off getting a reverse mortgage. "Even though the minimum age to get a reverse mortgage is 62, the average age is 76. Life expectancy limits the amount you can borrow." A person aged 70 with $100,000 equity in a home would receive $272 per month through an FHA-insured reverse mortgage (at 10% interest), but a person aged 80 could receive $453 per month.

She also advises people who plan to live in a house two years or less to avoid reverses. "With front-end fees and closing costs, you'd pay more than you'd get."

The FHA program, the Home Equity Conversion Mortgage (HECM), has several advantages. It's available from over 1000 lenders nationwide. You can receive monthly payments; have a line of credit or both. For example, a HECM with a 10% interest rate could provide a person aged 75 (with $100,000 of equity) with $352 per month for life, a $37,600 line of credit, or $258 a month with a $10,000 line of credit.

The major drawback of HECMs is the limit on the amount that can be borrowed. The area you live in determines the limit. The limits range from $67,500 in rural areas to $151,725 in some urban areas.

A reverse mortgage is definitely not for everyone and many lenders don’t carry it in their portfolio of products. Countrywide is one of them. However as an approved lender, we do carry the FHA program, the Home Equity Conversion Mortgage (HECM) and the Home Equity Lines Of Credit (HELOC).

Hey, I just thought of something. If mortgages are named after death does that make me an undertaker. I sure hope not. See you next week.

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