Wealth Logic Solutions

When you’re making your decision, there are several things to keep in mind.

First, even a small rate cut can pay off quickly. That’s because you can easily find mortgage companies willing to waive routine refinancing charges such as application, appraisal and legal fees (which can add up to $1,500 to $3,000). Of course, in exchange for low or no up front costs, you’ll have to be willing to accept a rate that’s somewhat higher than the prevailing rock bottom.

Second, if you are planning to stay in your home for at least three to five years, it may make sense to pay “points” (a point equals 1% of the loan amount) and closing costs to get the lowest available rate.

And third, you can avoid laying out cash and still get a low rate by adding the points and closing costs to your new mortgage. Does that mean shouldering a lot of extra debt? Not necessarily. If you’ve had your current mortgage for at least three years, you’ve probably reduced your balance by several thousand dollars. So you may be able to tack your closing costs onto your new loan and still end up with a mortgage that’s smaller than your original one — plus, of course, a lower rate and lower monthly payment.

When you refinance your mortgage, you usually pay off your original mortgage and sign a new loan. With a new loan, you again pay most of the same costs you paid to get your original mortgage. These can include settlement costs, discount points and other fees. You also may be charged a penalty for paying off your original loan early, although some states prohibit this. The total expense for refinancing a mortgage depends on the interest rate, number of points, and other costs required to obtain a loan.

To obtain the lower rate offered, most mortgage companies will charge several points, and the total cost can run between three and six percent of the total amount you borrow. So, for example, on a $100,000 mortgage, the company might charge you between $3,000 and $6,000. However, some companies may offer zero points at a higher interest rate, which may significantly reduce your initial costs, although your payments may be somewhat higher.
See www.MillieRosenbloom.com for more information.

Traditionally, the decision on whether or not to refinance has meant balancing the savings of a lower monthly payment against the costs of refinancing. But in recent years, companies have introduced “no cost” and low cost refinancing packages that minimize or completely eliminate the out-of-pocket expenses of refinancing. (These refinancing packages compensate with a higher interest rate, or by including some of the costs in the amount that is financed.)

With traditional refinancing, the most often cited rule of thumb is that the interest rate for your new mortgage must be about 2 percentage points below the rate of your current mortgage for refinancing to make sense. However, with the newer low and no cost refinancing programs, it can be worth your while to refinance to obtain a smaller reduction in interest rates.

How long you expect to stay in your home is also a factor to consider. If you’ll be moving in a few years, the month to month savings may never add up to the costs that are involved in a refinancing.

See www. MillieRosenbloom.com for more information.

A reverse mortgage is a special type of loan made to older homeowners to enable them to convert the equity in their home to cash to finance living expenses, home improvements, in home health care, or other needs. With a reverse mortgage, the payment stream is “reversed.” That is, payments are made by the lender to the borrower, rather than monthly repayments by the borrower to the lender, as occurs with a regular home purchase mortgage.

A reverse mortgage is a sophisticated financial planning tool that enables seniors to stay in their home or “age in place” and maintain or improve their standard of living without taking on a monthly mortgage payment. The process of obtaining a reverse mortgage involves a number of different steps.

The first most widely available reverse mortgage in the United States was the federally insured Home Equity Conversion Mortgage (HECM), which was authorized in 1987.

A reverse mortgage is different from a home equity loan or line of credit, which many banks and thrifts offer. With a home equity loan or line of credit, an applicant must meet certain income and credit requirements, begin monthly repayments immediately, and the home can have an existing first mortgage on it. In addition, there is no restriction on the age of borrowers.

In general, reverse mortgages are limited to borrowers 62 years or older who own their home free and clear of debt or nearly so, and the home is free of tax liens.

Borrowers usually have a choice of receiving the proceeds from a reverse mortgage in the form of a lump sum payment, fixed monthly payments for life, or line of credit. Some types of reverse mortgages also allow fixed monthly payments for a finite time period, or a combination of monthly payments and line of credit. The interest rate charged on a reverse mortgage is usually an adjustable rate that changes monthly or yearly. However, the size of monthly payments received by the senior doesn’t change.

Some reverse mortgage products also involve the purchase of an annuity that can assure continued monthly income to the senior homeowner even after they sell the home.

The size of reverse mortgage that a senior homeowner can receive depends on the type of reverse mortgage, the borrower’s age and current interest rates, and the home’s property value. The older the applicant is, the larger the monthly payments or line of credit. This is because of the use of projected life expectancies in determining the size of reverse mortgages.

Seniors do not have to meet income or credit requirements to qualify for a reverse mortgage.

Unlike a home purchase mortgage or home equity loan, a reverse mortgage doesn’t require monthly repayments by the borrower to the lender. A reverse mortgage isn’t repayable until the borrower no longer occupies the home as his or her principal residence.

This can occur if the sole remaining borrower dies, the borrower sells the home, or the borrower moves out of the home, say, to a nursing home.

The repayment obligation for a reverse mortgage is equal to the principal balance of the loan, plus accrued interest, plus any finance charges paid for through the mortgage. This repayment obligation, however, can’t exceed the value of the home.

The loan may be repaid by the borrower or by the borrower’s family or estate, with or without a sale of the home. If the home is sold and the sale proceeds exceed the repayment obligation, the excess funds go to the borrower or borrower’s estate. If the sales proceeds are less than the amount owed, the shortfall is usually covered by insurance or some other party and is not the responsibility of the borrower or borrower’s estate. In general, the repayment obligation of the borrower or borrower’s estate can’t exceed the value of the property.

In general, a borrower can’t be forced to sell their home to repay a reverse mortgage as long as they occupy the home, even if the total of the monthly payments to the borrower exceeds the value of the home.

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FROM The Chicago Tribune May 6, 2007

Long criticized as too upbeat, Realtors’ departing economist now sees recession.

… “We’re in a real estate recession,” said David Lereah, chief economist for the National Association of Realtors, … “I’m projecting the first (nationwide) price drop since the Great Depression … We’re going to have negative home prices in 2007.”

Economists generally agree that the (real estate) slide did begin in fall 2005. That year, home sales exceeded $7 million and have since tapered to a current rate of $6.1 million. Though that’s still historically solid, the inventory of homes for sale has climbed to a record 30-month supply.

Lereah said the market overheated primarily because of lax lending practices and record numbers of speculators who bought houses at inflated prices to flip for profit. … making zero down payments with no documentation, that’s just irresponsible. “But the Realtor, the lender, the title attorney, they all got wrapped up in the frenetic pace of the boom.”

… “We strayed from (economic) fundamentals, and we’re paying for it. It’s not an all-out bust, not a crash in real estate, but it is a recession. This is going to cleanse the markets and in the long term this is what we have needed.” … Nonetheless, he said housing’s long- term prospects are good. …”I think it’s the best investment anybody can make.”