How Does a Reverse Mortgage Loan Work?

In California where living costs are high many of our mortgage clients over the past few years have reached out to us about whether a reverse mortgage could be a good choice for their needs. A reverse mortgage is a home loan specifically designed for homeowners who are aged 62 or older who have a lot of equity in their home.

Unlike a traditional mortgage where the homeowner makes monthly payments to a lender, a reverse mortgage allows homeowners to convert part of their home equity into cash without selling the property. With a reverse mortgage homeowners can receive the proceeds from their loan as a lump sum, monthly payments, or a line of credit.

One of the most appealing features of reverse mortgages for seniors is that they do not require monthly mortgage payments. Instead, the loan balance accumulates over time, typically with interest. Borrowers are still responsible for property taxes, homeowners insurance, and maintenance of the home. A reverse mortgage loan is repaid when the homeowner sells the home, moves out of the home, or passes away. When one of those events occurs, the proceeds from the home sale are used to repay the reverse mortgage, and any remaining equity goes to the homeowner or their heirs.

There are many advantages to these types of loans but it’s important to remember reverse mortgages can provide additional income for seniors, they come with their own risks and considerations. Interest accrues on the loan balance, which can reduce the equity in the home over time. Before considering a reverse mortgage, homeowners are advised to thoroughly understand the terms and explore all the alternatives for their situation.

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3 Tips For Selecting the Perfect Home

For those beginning the process of home buying, there are many factors to consider. Keep these ideas in mind as you conduct your search – whether it’s online or at a series of open houses.

Consider future needs
Because life is always evolving, it’s important to move into a home that has enough space for your family’s anticipated changes. While features and space are always prime considerations, don’t forget to, look into the area schools, day care options, parks and other kid-friendly amenities if you plan to grow your family in your next home.

Look for flexible spaces
Seek homes that offer rooms with multiple functions. For example, an office area may be suitable for a small child’s room, or a sunroom may be converted to a laundry area down the road. Unfinished basements are also blank canvases that can be customized to meet your family’s wants and needs.

Get to know the area
The purchase of a home goes well beyond the property line. Be sure to examine the neighborhood in which the house is situated. From the condition of the neighbors’ houses to highway access and the proximity of necessities like grocery stores and gas stations, be sure to take every factor into account to help ensure you’re selecting the right location.

Find more tips to aid you in your home search at SOURCE: Family Features

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The 5 Biggest Things That Affect Your Mortgage Rates

One of the most common conversations we have with clients is why their mortgage rate is different from the rates they see advertised on TV.  Mortgage rates are affected by several things which is why you probably have a different loan rate than your friends and family. The mortgage rates you see advertised on TV are rates for what lenders consider a perfect loan scenario. Most advertised rates apply to less than 5% of California mortgage loans.

In this article, we share the top 5 factors that affect the interest rate on your mortgage loan.

The 1st factor is beyond your control or your lender’s control. Factors 2-5 are considered varying levels of risk to lenders. Your mortgage interest rate is calculated in part on where you rank on these 5 factors.

First, General Market Rates.  The baseline mortgage rates are based on current interest rates set by our financial markets.  These rates fluctuate based on general economic health, inflation, the jobless rate, imports, exports, etc…

Second, Credit Scores. The lower your credit score is, the higher your mortgage loan rate.  This is because lenders consider lower credit score borrowers more risky than a borrower with high credit scores.

Third, Debt vs Income. If you earn a good income but you also owe a lot of money to personal loans, credit cards, auto loans or other obligations your mortgage interest rate will be higher than someone who does not have a lot of monthly debt payments. Lenders refer to this as your Debt to Income Ratio (DTI).  

Fourth, Loan to Value.  If your home is worth $500,000 and your mortgage loan is $400,000 then your Loan to Value (LTV) is 80%.  Someone with a 70% LTV will get a lower mortgage interest rate than someone with 80% LTV. This is why when home values are high many homeowners will refinance their home.  The higher loan value gives them more borrowing power as well as a more attractive interest rate.

Fifth, Loan Size. Every county in the U.S. has a loan limit established by Federal Guidelines.  You can still borrow more money than this loan limit. However, if your mortgage loan is equal to or less than this limit, you will get a lower mortgage interest rate. These county limits change but your mortgage lender can tell you what the current limit is for your county.

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