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Posts Tagged ‘reverse mortgage’

Should You Tap Your Home’s Equity?

January 22nd, 2010 by Matthew C. Keegan | 2 Comments | Filed in Home Financing

Among the many inaccuracies being doled out by the media these days is news about the housing market.

home financingCertainly, there are many homeowners who are in trouble, likely to lose their homes to foreclosure or suffer significant loss to the value of their homes. But there are many millions of homeowners who are riding out stormy seas with some already coming out on the other side in improved shape. Those people are likely to help lead the recovery effort provided that Congress and the Obama administration back away from trillions of dollars in promised new spending.

But this article is not about politics. What it is about is tapping your home equity, money you have built up in your home after many years of ownership and market value increases.

Responsible Consumer Borrowing

Responsible consumers know that home equity should be used to finance important things in their lives including a home renovation project, fund college tuition, pay off medical bills, even debt consolidation. Of course, putting money out for anything beyond what would benefit the home directly has some analysts unnerved, but when used wisely it can be a smart decision.

There are essentially four options for most homeowners when it comes to taking out equity. Three are generally available to all homeowners while a fourth depends a lot on your age.

1. Home equity loans (HEL) – Sometimes maligned and occasionally abused, a home equity loan allows you to tap the equity in your home, receiving a loan with your home secured as collateral. In most cases a HEL is tax deductible and, if you sell your home, you will be required to pay off your loan along with your first mortgage.

2. Home equity line of credit (HELOC) – With your home secured as collateral, a credit line can sometimes be advantageous for the homeowner who wants a ready supply of cash available, but who plans to tap the line only when needed. A HELOC can be accessed for a number of years, and you are responsible for paying back only what you have borrowed. Your HELOC should be tax deductible.

3. Cash-out financing – This kind of loan describes when a homeowner decides to refinance his mortgage to obtain a new loan. That new loan exceeds the amount owed on the current loan with those extra monies available for whatever purposes. The advantage here is that there is only one loan involved and it is tax deductible.

4. Reverse mortgage. For senior citizens who want to stay in their homes, a reverse mortgage can allow them to do so especially if they have build up significant equity over the years. No payments are due until the borrower moves, dies, or if the property is sold. The final payment can not exceed the proceeds from the sale of the home, freeing heirs from further obligation. Work with an accountant to discuss your options as well as tax implications.

What type of loan is right for you? Ask your financial advisor who can discuss tax advantages as well as help you map out a repayment plan.


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Is A Reverse Mortgage Right For You?

January 28th, 2009 by Matthew C. Keegan | 5 Comments | Filed in Money Management

Senior citizens who are living on a fixed income often wonder if they’ll outlive their savings, a very real fear in these days of declining investment portfolios.  After last fall’s financial debacle,  some people who own their homes wonder if they’ll be able to stay put or be forced to sell and move into an apartment.

Senior LadyOne option available for mature American homeowners is a reverse mortgage or a home equity conversion mortgage (HECM). An HECM allows seniors to tap the equity in their homes without selling their property, a move which could keep them in their houses for the rest of their lives.

With an HECM, your heirs would handle your estate, selling off your home and keeping the proceeds after the HECM is paid off. Of course, this option reduces what your heirs receive, but it can keep seniors in their homes for the long term.

The following advice about reverse mortgages comes from the LendingTree Smart Borrower Center:

  • Reverse mortgage candidates must be at least 62 years of age, have significant equity in their property, and be looking for a reverse mortgage on their primary residence only.
  • Anyone who intends to apply for a reverse mortgage is required by law to complete a 45-minute counseling session with a HUD (Housing and Urban Development) approved counselor*.
  • The sum from a reverse mortgage can be paid to you in a couple of different ways; all at once in a single lump sum of cash; as a regular monthly loan advance or as a credit line that lets you decide how much cash to use and when to use it; or you may have the option to choose a combination of any of these payment plans.
  • The amount of cash you can get from your home’s equity is determined by a number of factors including your age, your home’s value and location, and current interest rates.
  • Reverse mortgages may have tax consequences, could affect eligibility for assistance under Federal and State programs, and may have an impact on the estate and heirs of the homeowner.

Seek legal counsel and consult your family members before opting for a reverse mortgage. Though the guidelines are stringent, you want to make sure that what you sign passes legal muster and that your family is aware of your plans.

Certainly, a reverse mortgage isn’t for everyone and it is decision that should be well thought out with all options considered.

Source: Lending Tree

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