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Reverse mortgage

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  • Reverse mortgage

    Reverse mortgage:

    A reverse mortgage (known as lifetime mortgage in the United Kingdom) is a loan available to seniors (62 and over in the United States), and is used to release the home equity in the property as one lump sum or multiple payments. The homeowner's obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves (i.e. into aged care).

    In a typical mortgage the homeowner makes a monthly amortized payment to the lender; after each payment the equity increases within his or her property, and typically after the end of the term (e.g. 30 years) the mortgage is paid in full and the property is released from the lender.

    In a reverse mortgage, the home owner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments, then the debt on the property increases each month.
    If a property has increased in value after a reverse mortgage is taken out, it is possible to acquire a second (or third) reverse mortgage over the increased equity in the home. But in certain countries (including the United States), a reverse mortgage must be the first and only mortgage on the property.

    Jumbo mortgage loans

    Jumbo mortgage loans are a higher risk for lenders. This is because if a jumbo mortgage loan defaults, it is harder to sell a luxury residence quickly for full price. Luxury prices are more vulnerable to market highs and lows. That is one reason lenders prefer to have a higher down payment from jumbo loan seekers. Jumbo home prices can be more subjective and not as easily sold to a mainstream borrower, therefore many lenders may require two appraisals on a jumbo mortgage loan.

    The interest rate charged on jumbo mortgage loans is generally higher than a loan that is conforming, due to the slightly higher risk to the lender. It can vary but is generally 0.25% to 0.5% higher.

    Loan option:

    Jumbo mortgage loan options are similar to traditional loan programs. They simply require a slightly higher down payment, usually of an additional 5% for similar program types. No-money-down programs are generally not available, but instead require a minimum of 5% down payment for a jumbo mortgage. Because the loans are large, jumbo lenders frequently offer variable loan programs to the jumbo client. The risk of an interest rate increase can result in a large dollar amount increase. Generally, adjustable rate mortgages are popular due to the low payment.

    It can be more expensive to refinance a jumbo loan due to the closing costs. Some lenders will offer the service of an extension and consolidation agreement, so that a jumbo refinancer will not have to pay for mortgage tax again on the same principal balance. In other cases, title insurance companies will offer up to a 50% discount, often required by law for those refinancing within 1 year to 10 years. The largest discount is for refinancing within one year.

    Some consumers seeking a jumbo mortgage choose to seek advice from a competent professional familiar with jumbo mortgage loans.
    Last edited by BDAdmin; 09-22-07, 08:03 AM.