Mortgage Loans Guide

I received a call from the son and daughter of a senior borrower today and they wanted to know if their mother could refinance her reverse mortgage loan. I answered them honestly that yes, she could, but had to ask why was she thinking about refinancing.

The reason I asked for the borrower’s motivation was because I had a borrower call just a week before and ask if he could refinance because he was receiving a payment and he wanted to change to a line of credit. I told him that he needed to contact his lender, that with a small fee he could change his existing loan and not have to incur any additional costs for a new loan. The limits had not changed since he had done his initial loan and it did not make any sense for him to look into refinancing.

Back to the first borrower. When I received her information, I saw that she had taken an annual adjustable rate, that the HUD Lending Limit in her area had gone up a good deal, that her initial mortgage was taken with her husband who was five years younger but had since passed and that it really did make sense for her to refinance into a new monthly adjustable reverse mortgage loan. Since the passing of her husband, she really needed the extra income and I was glad we were able to help her out.

The things you have to remember when you consider refinancing a reverse mortgage loan is that HUD has a Five Times Benefit rule to determine whether or not the borrower has to go back through counseling again. The five times benefit means that you have to take all the costs incurred to do the new loan and multiply those by 5 and if the borrower is not receiving at least 5 times or more this much money with the new loan over the old loan, then the borrower must attend counseling again. It doesn’t mean the borrower can’t get the loan, if it still makes sense, they just have to go through the counseling again to make sure they again understand the program. A good way to illustrate this is that if all the costs for the new loan would total $10,000, then the borrower would have to net $50,000 more on the new loan (there is a formula that the lenders have to follow per HUD guidelines which also accounts for servicing set-asides but for simplicity sake, this is a simplification of the policy). In my borrower’s case, she wound up netting a significantly higher benefit and did not have to attend counseling again.

The costs you have to incur are all the same costs as when you got your first reverse mortgage (title, escrow, appraisal, origination fee, etc.) with the exception of one the mortgage insurance. The mortgage insurance from the loan being paid off is transferred to the new loan so only the difference from the old level to the new level is what the borrower has to pay on a refinance. For example, if the old mortgage insurance was based on a lending limit of $200,000 and the new limit was $225,000, then the mortgage insurance would be 2% of the difference between the two, or $500 instead of the $4511.11 it would normally cost. The borrower already paid the other $4,011.11 on the first loan and HUD does not charge it a second time for the new refinance.

By and large, if there has been a change in your area or a life change with the original borrowers, it may make sense to look into a refinance. Give us a call and let us look at your circumstances but if it doesn’t make sense for you, we will tell you right up front. There is no reason to incur costs unless you, the borrower, really are going to benefit by doing so.



By: Michael Branson

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You have heard that refinancing a loan might be able to save you some money, but do you know how it could? This article will show you how you might be able to benefit by refinancing your mortgage, and showing you how you could end up saving some money - with a better deal.

If you have any thought at all that you wish your payments could be a little lower, then this article is for you. Many mortgages were made at a time when the economy was doing better than it is right now. So you may be one of those people who, because the economy was good, got a variable interest rate on your mortgage. It was good when you got it because it helped you get that house you wanted, but now you may be faced with a higher payment soon - in fact, possibly a much higher payment than you had before. Refinancing may provide you with a real good solution.

Combine Your Debt

If you have more than one form of debt, and are paying a hefty rate of interest on some of it, then refinancing will give you the opportunity to combine the debt, and get a better rate of interest. Combining them all together makes it so much easier to write one check, too.

Reduce Your Term Length

With many mortgages, the term length allows the lender to tack on to the loan a whole lot of extra interest. The longer the term length, the more interest you are paying. By reducing the term length, and combining your loans, you can pay more on the principal quicker, thus reducing the overall amount that you owe.

Get Better Interest Rates

Having more than one type of debt may mean that you have at least one of them with a higher rate of interest. By getting a loan when the interest rates are down, you can definitely save some money. Refinancing your debts, however, is only valuable to you if you can get a lower interest rate than you have now. If one or more of your debts have a lower rate than the one you are getting, keep them separate and enjoy the low rate, but bring down your overall debt interest where possible.

Get Smaller Payments

By refinancing your mortgage, you have opportunity to get a smaller loan, and this could give you smaller payments, too. You will want to make sure, however, that there is not any penalty for paying off the loan quicker than the term length of the loan. Take advantage of the smaller payments, as much as possible, and make larger than the minimum payments each month to be able to get out of debt as soon as possible. If you cannot pay more than you were before, at least pay as close as possible to the same amount which will enable you to pay it all off sooner.

Get Some Extra Cash

By refinancing, you may also get a little extra money for one or more projects around the house, too. If money is tight, though, you may want to hold the extra projects until the debt is reduced some and you build up some equity in the new loan - if the project can wait.



By: Joseph Kenny

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Refinancing a mortgage can be a great way to save money, but if you are not careful then you might find that your refinanced mortgage loan will actually end up costing you more than your original loan did. You should make sure that you do not rush into refinancing a mortgage loan, taking the time to consider whether you would be better served by keeping your current loan or refinancing with a new loan. In order to help you to decide whether refinancing is right for you, ask yourself the following questions before you refinance.

Can I get a better interest rate?

Before you refinance, always take the time to check the interest rate you will have to pay. Though many commercials and advertisements might say that it is a great time to refinance, you will find that more often than not the same advertisements will appear regardless of whether rates are low or high. Take the time to shop around before you refinance, and collect rate quotes that you can compare to your current mortgage rate. That way, you can make sure you will be paying less for your new loan than you are for the mortgage loan you currently have. If you find an exceptional deal on an interest rate then you can end up saving thousands of dollars on your mortgage over the course of repayment. Consider and weigh both the total of payments over the long term as well as any “savings” you may receive on the monthly payment. Sometimes a lower payment now means a higher cost overall, but not always.



How will this affect my monthly payment?

Another major consideration in regards to whether you should refinance is how refinancing will affect your monthly mortgage payment. While many refinance loans will lower your monthly payment at least slightly, it is possible to actually increase your payment with a refinance if you are not careful. If the loan terms or interest rate are not advantageous then you also might find that the amount of the decrease in your mortgage payment is not significant enough to justify abandoning your old interest rate and terms. If you are having trouble making your current payments, though, then you might be able to find a refinance loan that will reduce the amount you have to pay enough that your budget no longer has to suffer.



Will the terms of the loan stay the same?

If you have flexible loan terms on your mortgage, you need to be careful and make sure that you do not end up getting terms for your new loan that are much more restrictive such as an early payoff penalty. Be sure to read through the proposed terms for any new refinance loan before you agree to anything, making sure that there are not any provisions in it that will make the loan much more difficult to repay than your current mortgage loan like a balloon payment at the end of the term. Keep in mind that the reverse may be true as well; if you currently have strict terms to your mortgage you may be able to refinance with a loan that is much more flexible. Compare your current terms to the terms of any refinance loan that you may be considering to see which offers you the greatest advantage over the course of your loan repayment.



How long do I have to repay the refinanced loan?

Depending on the type of mortgage loan that you have and the amount that remains to be paid on it, you may be able to either lengthen or shorten the repayment term of your mortgage with a refinanced loan. Make sure that any change in the amount of time that you have to pay off your loan works to your advantage. While it can be useful to add several more years to a refinanced balloon mortgage or interest-only loan, adding another 10 years to a 30-year mortgage can make the repayment time stretch on for what seems like forever if you are not paying more than the minimum payment. On the other hand, if you have excellent credit and 20 years left on your current 30-year mortgage, you may be able to refinance to a 15-year mortgage with a much lower interest rate, keeping your payments essentially the same but paying off the balance in an accelerated time period.



What will the refinanced loan cost me overall?

Whenever you consider refinancing your mortgage loan, it is always important to look at the bottom line. The whole point of refinancing is adjusting the loan terms so that they are more in your favor than the current terms – if adding another five years to your mortgage is going to add a significant amount of added interest fees to what you have to pay then it is not worth it. Make sure that there is a definite advantage to your refinanced loan over your standard mortgage loan, or else wait until the time is better to refinance and stick with your current loan for now.



By: Shawn Thomas

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