Refinance or Use Home Equity for a Reverse Mortgage?

Samantha Taylor
Scenario:

I am considering pros and cons of taking a reverse mortgage or refinancing my existing mortgage. I will be 70 in September, and the social security income is one source that I primarily rely on. I do have some savings which I’d like to keep intact in case I need it for medical purposes and the like. Now as I found out a few days ago, if I go for a reverse mortgage, that is going to cost me a lot compared to what I paid for an existing loan. The outstanding balance on the existing loan is around $25000. So which will be the best way to go for – Do a refinance or take out a reverse mortgage?

Solution:

At your age of 70 years, you may find it difficult to qualify for a refinance loan. This is so because the lender or the mortgage company would require you to have a steady flow of income along with a sound credit payment history. And, considering your income source, I guess it’s the social security income that you’re currently relying on.

However, when you go for a reverse mortgage, make sure that you’re paying off any old debt against your home or else you’ll have to pay it down with the proceeds obtained through the loan itself. Moreover, you cannot borrow beyond a certain level of your home equity if you’re going to take a reverse mortgage. This is because the lender offers a loan amount such that the interest on the loan can be included into the value of home equity.

Now, instead of taking a reverse mortgage or a refinance loan, you can also look out for a home equity line of credit that will allow you to withdraw cash as and when required within an allowable credit limit. But here again you will be required to have a certain income limit to get qualified for the loan. So, when it comes to qualifying for a loan, I think a reverse mortgage is the best option for you.

You can select an FHA-insured loan (HECM), a lender-insured or even an un-insured reverse mortgage. It is better that you do some loan shopping in order to compare the costs required for each type of mortgage offer that you are likely to qualify for. However, before you decide to choose a loan program, consider your monthly expenses and any investment option that you’ve been interested in. This will help you to decide whether you can afford to pay off the loan in case it becomes callable.

If you wish to discuss on reverse mortgage and related issues, feel free to ask questions and get the right suggestions through our community forums.
http://www.articlesbase.com/mortgage-articles/refinance-or-use-home-equity-for-a-reverse-mortgage-213931.html

What is the Difference Between Refinancing and a Reverse Mortgage

by Barry Waxler
There are several different ways to get monetary payments based on your home's equity - but what is the difference between refinancing and reverse mortgage, two of the most popular?

Refinancing your home, essentially getting a second mortgage, has been a popular option for decades. Homeowners who want to get money in a lump sum, based on the equity of their home (their home's value minus the amount owed on their first mortgage), often choose to refinance. This allows them to get a second loan on their home, and requires that the loan be paid back, along with the original mortgage, or instead of the original mortgage (depending on the terms of your second mortgage).

So, what is the difference between refinancing and reverse mortgage? Reverse mortgages do not require that you take out a second loan on the equity of your home. Instead, you can actually get payments based on that equity, and you are not required to pay back the reverse mortgage until you either pass away or move out of your home for good. These payments (which can also be used as a line of credit, with unscheduled payments) are tax free and can actually be used as income for living.

Another difference with a reverse mortgage is the age requirement. People who apply for a reverse mortgage must be at least 62 years old or older, and payments may be based on this - along with the value of your home and current interest rates. This means that you can't be turned down for a reverse mortgage because of bad credit or your debt to equity ratio. You also can't lose your home if you outlive your loan - as long as you use the home as your residence, you can't be evicted, as you do not owe more than your home is worth.

There are some negative aspects associated with both refinancing and reverse mortgages. The cost of both is high, just in different ways. The interest rate encountered when paying back a second mortgage can be very elevated, costing you a lot of money in the long run. Reverse mortgages can also cost money - fees for the broker when getting your reverse mortgage, as well as interest due from your beneficiaries when you pass on or leave your residence.

What is the difference between refinancing and reverse mortgage? There are several differences, considering the fundamental way they work, so being sure to research and choose the right one for you is key.
http://www.ufcamerica.com/disadvantages-reverse-mortgage