Diminished income preventing you from lowering your mortgage payment?

January 19th, 2011

Diminished income preventing you from lowering your mortgage payment?

Early in the recent recession many companies offered senior employees early retirement packages to avoid layoffs. Also during the past few years the first wave of "Baby Boomers" reached retirement age and began drawing on their pensions and social security. Many of the recently retired own homes that still have mortgages at higher rates than have been available to their neighbors who have funded, or applied for refinance mortgages. Using refinance calculators many senior or older homeowners can see the money they could save with a refinance mortgage, but are frustrated due to their diminished income preventing their qualifying for the lower mortgage payment.

Qualify for no payment

If you have equity in your home, a mortgage with a high interest rate and are on a fixed income that is significantly lower than your income was when you obtained your current mortgage, you may find yourself unable to qualify for a refinance mortgage payment. But could you qualify if you have no mortgage payment?

If you are 62 years or older and have the required equity in your home you most likely qualify for a reverse mortgage. Many recently retired seniors, or those who have been retired for some time, are eschewing the traditional refinance mortgage and instead funding a reverse mortgage refinance to eliminate their mortgage payments. Instead of saving $200 per month on your $175,000 mortgage, how about saving $1000 or more depending on your monthly payment?

Credit not a factor

Mortgage calculators assume you have the necessary credit scores to obtain the mortgage products you are considering. Pre-qualification calculators that assist you in determining your purchasing power does not ask if you have good, or poor, credit; the assumption is that your credit rating is strong enough to qualify for standard conventional and FHA mortgage products. A refinance calculator inquires about your current mortgage balance and payment, not if you have made all your payments on time.

If you have had challenges making your mortgage payments on time, or other credit payments, that is not a factor with funding a reverse mortgage refinance. Or maybe your fixed income allows you to qualify for a mortgage refinance, but under the new Fannie Mae credit guidelines your other credit payments push your income-to-debt limit beyond the ability to qualify. This is not an issue with a reverse mortgage as credit payments and credit history are not factored into your ability to qualify since you will not have a mortgage payment.

How a reverse mortgage works

For qualified individuals a reverse mortgage is fairly simple. Your mortgage amount is determined by only three factors: the age of the youngest borrower, the value of your home and the current mortgage interest rate. Once the amount of the mortgage is established you can select one or more of the three options available:

  • Fully funded mortgage to maximum amount
  • Equity line of credit available for future access to equity if needed
  • Monthly payment, similar to an annuity, for a fixed amount or fixed period of time

If you have an existing mortgage it must be paid off with reverse mortgage proceeds, if you qualify for more than your existing mortgage payoff you can choose any, or all, of the above options with the remainder of the proceeds.

As long as you live in your home you do not need to make any payments on the mortgage. If you wish to make payments to pay down the balance you may, however you are not required to do so. Instead of making monthly payments on your mortgage, your interest owed accrues on your mortgage balance. When you, or your heirs, sell your home the principal balance plus accrued interest, is paid in full.

There are many misconceptions about reverse mortgages that have unfortunately prevented many qualified seniors from considering a reverse mortgage from which they could benefit. With a reverse mortgage you cannot get kicked out of your home, you are not taken off title, it does change your government benefits and it does not cause your children to lose their inheritance.

If you are over 62 years of age and on a fixed income faced with a challenge every month with your mortgage payment, or perhaps looking to downsize to a smaller home but cannot qualify for a new loan, consider using a reverse mortgage to meet your mortgage needs.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

Prequalification calculator tips and tricks

March 02nd, 2011

Are you paid weekly or every other week? Is semi-monthly the same as bi-weekly? One of the most important duties performed by a...  Read More

Home price and sales data show weaker housing markets

February 28th, 2011

If you've been thinking 2011 is the year for you to purchase a new home you may be weighing whether to purchase before rates climb...  Read More

Trust yourself, trust your home

February 22nd, 2011

Every newspaper has a section where, if you are in it, you will not be able to read your name and the story. It is the obituary section. Reading...  Read More

Mortgage rates remain above 5 percent as consumer prices rise

February 18th, 2011

There is a relationship between prices you pay in the store and the rate on your new home loan or refinance mortgage. This week two key indexes on prices were...  Read More

0 Responses to "Diminished income preventing you from lowering your mortgage payment?"

No Comments

Leave a Comment