loans

The Reverse Mortgage

If you are considering a reverse mortgage, there are a few key things to consider before taking the plunge. Like any financial undertaking, it is important to ponder these decisions.

First, we should start with what a reverse mortgage actually is. Essentially, it is a type of home loan that allows you to turn the equity you have on your home into cash. So, all of the equity you have built over the years from paying on your mortgage can become accessible funds for you to use. Typically referred to as a Home Equity Conversion Mortgage (HECM), these loans do not need to be paid back until you move out of the house. And generally speaking, with a reverse mortgage, you do not have to make a monthly mortgage payment.

And for a bit of history- the first FHA-insured reverse mortgage was issued back in the late 1980’s. Generally speaking, these types of loans allow older, long-term home owners to access part of their home equity without ultimately having to move.

Now, who actually benefits from a reverse mortgage? People who do not plan to move, people who can afford the cost of maintaining their home, and people who want to access the equity on their home (whether it is to supplement their income or simply to have for one of those “rainy days”).

The longer that you have been living in your home and the older you are, typically your mortgage balance is much smaller and you have built up more equity in your home. So, life expectancy does play a factor in your reverse mortgage and how much money you will receive.

 

Here’s an example: Bill and Sue are both 80 years old. They do not have any plans to move and are looking for a way to supplement their monthly income. After meeting with a loan officer, they get their house appraised at $300,000. With only $35,000 left to pay on their mortgage, the available reverse loan amount available to them is about $195,000. After settlement costs, their remaining mortgage balance, and other taxes & fees, there is still a sizable amount of money left to supplement their monthly income. Even to take a small vacation.

While a reverse mortgage sounds like a great idea, they are most beneficial when you have been living in the same home for quite some time (and have been regularly paying on your home mortgage) and if you are planning on staying in the same home.

Wondering if you are in a good situation for a reverse mortgage or simply want to discuss all of your options, speak with one of our loan officers. We are happy to talk through your unique situation and find out what options are best for you.

 

 

Total Home Lending

 

Natasha Mason

The Reverse Mortgage2020-09-28T15:14:20+00:00

Mortgages: not just for houses

If you fall into the group of people who are interested in building their home, rather than buying, that may be a question that has crossed your mind. Typically, mortgages are associated with houses. Even though you are technically starting your process by purchasing a plot of land, mortgages are still for you!

 

The Big Decision

Making the decision to build as opposed to buy can be a difficult one. Because, if we are being completely honest with ourselves, building is much more involved and is a much longer process than buying. But it does not necessarily mean it is more of a financial burden.

No, you do not need to know how to build your own home! But there are a few things to keep in mind before making the decision to build. Now, here are some of the “pros” of building your first home.

 

Pros

First- ask for a builder’s discount. When you are working with a local lumber yard or with other local suppliers, just ask for a builder’s discount. Letting them know that you are building your own home (ie- buying a substantial amount of materials) can potentially lead to a higher discount on those materials. Our recommendation? Just ask! There is never any harm in asking for a discount, right?

Now, the next “pro” for building versus buying is that you have complete control over the design. Essentially, your home can actually be the home of your dreams. Want a walkout basement? That can be arranged. A spiral staircase? Bay windows in the master bedroom? You have 100% control over the design, within reason of course. That reason, alone, is what leads many people to build a home rather than buy.

Additionally, you can create the ideal space for your lifestyle. If you have kids, you can arrange for the exact number of rooms you need. Maybe you enjoy entertaining- building will allow you to arrange for more spacious room to accommodate large groups of people. Yes, you can shape your home around your lifestyle.

Next on the list- everything is new. New air conditioner, new furnace, new flooring. Yes, new everything. That helps eliminate many of the hidden costs that occur when you are closing on a home. You won’t need to repaint the interior, refinish the front porch, replace the refrigerator. Since you will be building a home from scratch, you know when every appliance has been installed in your home. Think about this- replacing central air can cost between $2,000 and $10,000, depending on the size of your home.

Now, since everything is new, you can expect to save money each month, as well. New air conditioner means savings. Same with new furnaces, new home with insulation you can vouch for. While it may not be the best reason to build versus buy, those savings can definitely add up month after month, year after year. It is definitely just a thought to keep in mind.

Cons

Building a home is not all smiles and easy planning. There are a few cons to keep in mind before embarking on the decision to build.

The biggest thing to keep in mind is the amount of time it takes to build a home. When you buy, it can be a matter of months before you move in. Naturally, building takes significantly longer. It can be anywhere from six to twelve months before your house is built- and then you still need to move in. This is a very important thing to keep in mind when making the decision to build. Can you wait that long? If your answer is yes, you can move on to the next step in the building process.

While you are waiting to move in, you have to think about where you will live while you build. Temporary housing or renting can be extremely expensive. So your “home,” while you are building, is definitely something to keep in mind and ensure you are budgeting for before deciding to build.

The final things to keep in mind are construction loans and permits, legal agreements between you and your builder, and limitations, both financially or depending on the regulations where you are building.

Back to the final decision

Whether you are building or buying, you can still obtain a mortgage. But, you need to make the decision of whether or not building is the best method for you.

So, sit down, look at your budget, and make the final decision to either buy or build.

Either way you lean, a mortgage will still make your dream home possible.

 

 

Total Home Lending

 

Natasha Mason

Mortgages: not just for houses2020-09-28T15:14:20+00:00

Higher Interest Rates & Home Buying

…what you need to know with increased rates right around the corner

Maybe you’ve been keeping up on economic news. Maybe you haven’t. Either way, one of the most discussed financial news stories this fall is about the Federal Reserve Bank (or the Fed) raising their interest rates.

 

Let’s start with the basics

The Fed sets a benchmark interest rate that, essentially, establishes how much it costs banks and other lenders to loan money. After the economic crash in the early 2000’s, the Fed lowered their benchmark rate to infuse more money into the economy. A lower rate means it is easier to lend, and subsequently borrow, money.

The result? A higher availability of “cash” in the hands of consumers and business owners. The lower the Fed’s benchmark rate, the lower your interest rate, as a consumer, will be.

So, the purpose of lowering the benchmark rate is to, ideally, stimulate the economy. The low rate set by the Fed nearly 7 years ago has assisted in the resurgence of the housing market, as well as the U.S. economy in general.

In December of last year, the Fed did raise their rate for the first time in 7 years to 0.50% with the intention to raise rates multiple times throughout 2016. The economy, however, has not been growing at the rate Fed officials initially anticipated. Consequently, the Fed has not raised their rates at all this past year, keeping their benchmark rate at 0.50%.

Why is this important to discuss right now, then? Well, the Fed will be raising that rate again, and soon. Fed officials will be meeting again, this month, to discuss raising their rate. Even if it does not happen in December, it is fairly certain they will be raising their rate in early 2017.

 

Now what does that mean for you?

You may be thinking- a 0.50% to 1% increase in the Fed’s benchmark interest rate isn’t that much. And, to some extent, you are correct. But how that number translates to your interest rates is much different.

Currently, the average interest rate for a 30-year fixed mortgage is at approximately 4% with the Fed’s benchmark rate is at 0.50%. When the Fed raises their rate, even by just 0.50%, the translation to your “real” interest rate is much more dramatic.

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So, let’s talk implications

For simplicity’s sake, let’s say the Fed increases their benchmark rate and, as a result, the average interest rate for a 30-year fixed mortgage jumps from 4% to 5%.

*these numbers were chosen to provide a concrete example of how increased interest rates can affect your overall mortgage payment

Now, let’s say you are looking at a $100,000 mortgage, with a monthly payment of $500. At a 4% interest rate, you are looking at paying approximately $2,000 in interest per year- totaling at $72,000 after 30 years. At a 5% interest rate, with the exact same mortgage and monthly payment, you are looking at paying approximately $3,120 in interest per year- totaling at $93,000 after 30 years.

That’s a difference of $30,000. Even though interest rates may have only increased by 1%, you are paying significantly more over the life of your mortgage.

 

You can still buy a house

…You just need to be aware of how a higher interest rate will affect your situation. The $100,000 home you were initially looking at may be a little too much “house” for you to afford. If your paying an additional $30,000 in interest over the life of your loan, it may take that house out of your price range.

On the other hand, if you can still afford the $100,000 home, it is essential to recognize that you will be paying more over the life of your mortgage with an increased interest rate.

If you are planning on buying in 2017, factor an increased interest rate into your plans and your budget. The last thing you need is a surprise (especially one of that magnitude) as you are trying to finalize a purchase.

 

Considering refinancing?

Now is the time! Talk to your lender, get your paperwork in and secure a lower interest rate immediately. For refinancing options, you should contact your lender so they can provide specific details for your situation.

 

 

by Natasha Mason

Higher Interest Rates & Home Buying2020-09-28T15:14:21+00:00
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