Home Equity Loans vs. Reverse Mortgages

Are you 62 years or older and looking to tap into the equity in your home but are unsure if a reverse mortgage or a home equity loan is the way to go? There are big differences between a reverse mortgage and a home equity loan.

Home equity loans or a home equity line of credit are considered a second mortgage on your home. To qualify for a home equity loan or line of credit, you have to have enough income to pay back the loan on your mortgaged home.

In addition, there are debt to income ratios that banks consider when giving you a home equity loan or home equity line of credit (HELOC). Not to mention, a HELOC is a variable rate line of credit, meaning the interest rate you pay isn’t a set rate and can go up. Home equity loan rates are also a lot higher than mortgage rates these days so you will be paying more interest than with a traditional mortgage.

A reverse mortgage is different from a loan or line of credit. The difference is that a reverse mortgage pays you, the mortgagee. The amount of money you can borrow depends on the equity in your home, your age, the prevailing interest rate, and the appraised value of your home or Federal Housing Administration’s mortgage limits for your area, whichever is less.

You can use a reverse mortgage calculator to see how much you qualify for but the general rule of thumb is the more valuable your home is, the older you are, the lower the interest rate, the more you can borrow.

Reverse mortgages may be a great way to tap into the equity in your home. As long as the home is your principal residence, you don’t have to make payments on the money you receive with a reverse mortgage. Keep in mind that as with a regular mortgage, the loan becomes due in full when you move or sell the house.

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Lenihan urged to reverse rate rise

FINANCE Minister Brian Lenihan was under growing pressure last night to force Permanent TSB to reverse its decision to raise its mortgage interest rate by 0.5 per cent, a move which industry experts believe will almost certainly be followed by other lenders.

As public anger over the rate hike intensified, leading business and political figures called on Mr Lenihan to act swiftly to force Permanent TSB to reverse its decision, and to prevent other institutions supported by the taxpayer to the tune of billions from following its lead.

Leading the charge, aviation tycoon Ulick McEvaddy slammed the move by Permanent TSB. "It's counter-productive isn't it, really? Raising interest rates when the ECB bank in Europe is bringing them down? It's certainly not good for the economy," Mr McEvaddy said.

Asked what the potential fallout would be were Permanent TSB's move to be replicated by other Irish banks, he said: "The more we increase interest rates and the more impediments we have to borrowing, the worse it's going to get in the economy."

He added: "I think the whole idea was that we had to stabilise the banks, but that doesn't mean the banks are allowed to engage in profiteering. The banks should be lending, and lending for the essential requirements of small business."

In a direct challenge to Minister Lenihan, Mr McEvaddy dismissed his contention that he could not intervene to prevent Permanent TSB raising its interest rates.

"That's why he [Mr Lenihan] has a regulator there, you know. I mean this is the same regulator that stood idly by while banks were giving 100 percent mortgages. Now they should be giving 100 percent mortgages while the economy is stagnating. But they made a mess of it all because they allowed 100 percent mortgages when the market was overheated."

Disquiet over Permanent TSB's move to increase its interest rates was growing in Government circles too with Minister of State at the Department of the Taoiseach Dick Roche expressing his "disappointment" at the interest rate hike.

Newly-appointed Minister of State for Enterprise Dara Calleary, meanwhile, described the interest rise as "completely inappropriate".

"Permanent TSB has justified it on the basis of the cost of funds. But I would really question why they are going for such a big hike at a time when people are under so much pressure," said Mr Calleary. "There seems to be a certain disconnect between the upper echelons in the banks and the real world." Mr Calleary added there appeared to be no mechanism to prevent the hike going ahead.

But Fianna Fail TD, and Chairman of the Oireachtas committee on Economic and Regulatory Affairs, Michael Moynihan, called on the minister to act.

"Something has to be done. The banks have been abusing their powers for some time," he said. "I understand the difficulties the minister is facing but he has to look at this very closely. He has to be fair to the taxpayer," Mr Moynihan added.

As fears grew last night that other financial institutions would follow Permanent TSB's lead, Bank of Ireland Chief Executive Richie Boucher pointedly refused to rule such a move out.

Speaking to the Sunday Independent, Mr Boucher said simply: "We are just constantly reviewing all our products and we're not going to comment any further than that."

A spokeswoman for AIB Bank, meanwhile, told the Sunday Independent: "Given the continuing high cost of funding we have to keep the rates under review."

Mr Lenihan has rejected a call from trade union boss Jack O'Connor of Siptu that the Government withdraw its guarantee on bank liabilities for any lender that raises rates.

"The proposal to withdraw the state guarantee from banks that increase their interest rate costs would mean even higher costs for mortgage holders. This illustrates the benefits of the state guarantee to mortgage customers. Permanent TSB are paying the State for the benefit of this guarantee," the minister said.

On a typical mortgage of €300,000, the 0.5 per cent increase will add an additional €70 a month to the borrower's current repayments.

Permanent TSB, a unit of Irish Life Permanent, said that the measure was required to support its business at a difficult time.

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How to borrow cash for that $75,000 kitchen you’ve always coveted

When it comes to financing your renovation, you have several options, some better than others. Your best bet is to sit down with your financial advisor and discuss which suits your individual situation, and how much you can reasonably afford to borrow.

Cash Great if you have it, especially for small projects. But if you have a substantial sum in a high-interest investment account or mutual fund, withdrawing it for a reno may not always be your best option: You should measure the loss in compound interest that the money would have earned in the savings account against the cost of an equivalent loan. In some cases, the loan might actually be cheaper, especially if it's secured.

Personal loan, line of credit Often have flexible repayment terms and fixed or variable interest rates. Loans are fixed for a set number of years with regular payments; PLCs have more flexible terms, allowing you to borrow up to a prearranged limit, paying all or a portion of the balance each month above a minimum (which is usually fairly small).

Secured line of credit, home equity loan Similar to loans and PLCs, but with lower interest rates, since your home is used as security or collateral. This can be an economical source of low-cost funds, but it's really a type of second mortgage, with all the drawbacks that entails - including the possibility of foreclosure if you default.

Mortgage refinancing Refinancing your existing mortgage allows you to spread out the payments over a much longer period of time, usually at a lower rate even than a secured PLC, and gives you access to as much as 80% of your home's appraised value. Costs may include legal and appraisal fees, and sometimes penalties, which you should weigh against the cost of other borrowing options. Another option is to allow extra funds for renovations when you take out a new mortgage, such as when you purchase a new home.

Reverse mortgage Financial advisors generally advise against these mortgages, as they are really nothing more than highly restrictive regular mortgages that you don't make payments on, so interest on them compounds unhindered - to the advantage of the lender. If you wish to borrow against the equity in your home, you're much better off with a new mortgage, home equity loan or secured line of credit.

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Michigan Home Equity Loan Rates Turns To Technology

Detroit, MI – Home owners who are looking for ways to save money will want to take note of this new resource. The Metro Detroit based http://www.getmelowrates.com/ has been established to help Michigan home owners get a lower mortgage during these rough economic times. The new website has launched in July 2009 and covers the following areas: low mortgage rate quotes, auto insurance, home owners insurance, reverse mortgages, and life insurance quote.



The site pulls in quotes from over 2,000 resources and delivers the most compatible ones for the online searcher. Get Me Low Rates.com comes to us at a great time in this rocky market. Last March, the Detroit Free Press announced that the residents of Michigan were leaving in massive numbers. Even though there is a serious population decrease Michigan has several great things going for it such as emerging markets. These include, the rising Film Industry, Alternative Energy and new manufacturing of green products.



Economists are hopeful that there will be a boom in the Michigan economy in the months to come. Those who are already living here in homes will want to take notice of this new online resource. Here they can apply for a second mortgage. For those who qualify, (age 60 or older) can apply for a reverse mortgage and have extra money to spend on essentials such as food, lights, and transportation.


“The site is designed to cover major areas of financial interest,” says Internet marketer Ted Cantu. “The recent need to refinance is something that is on everyone’s mind at the moment. GM and Ford have been in the news and the bailout situation has a lot of folks nervous. This site stands as a resource to Michigan home owners who find that they need to refinance and get a home equity loan. Right now, this is our chief concern. We want to make sure that enough Michigan home owners know about the many programs this state has to offer. Home equity loans can provide emergency funds in the same way that a reverse mortgage can.”


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Your money: Pensions, savings bonds, mortgages

With government playing a bigger role in the economy, it's hard to keep track of all the changes affecting our personal financial lives. The flagging economy has lead to a barrage of questions. Are public sector employee pensions safe? With inflation so low, do savings bonds make sense now? And what about reverse mortgages, are they a smart move now that new rules are in place? AP personal finance writers tackle those questions in this installment of "Your Money." If you have a question you want answered, e-mail it to yourmoney(at)ap.org.

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Q: When a pension goes bankrupt, I know there's a government guarantee on the obligations. How about when a government entity runs out of money, however, as my state and city are starting to do? If they can't fund their obligations, does someone else step in to pick up the check?

A: For public sector workers, there's no pension backstop comparable to the Pension Benefit Guaranty Corp., the federal agency that steps in when private plans can't meet obligations. Public pension sponsors — say, state or city governments — have contractual obligations to keep pensions fully funded.

That may be of little comfort when many local and state governments are stretched thin, such as California, which is struggling to close a $26 billion deficit. However, public pensions have a stellar record. Robert Klausner, a pension law attorney and counsel to the National Conference on Public Employee Retirement Systems, said he's unaware of any public pension failing to meet its obligations since the 1930s. In the case of Orange County, California's bankruptcy in 1994, retirees received full pension benefits throughout the financial crisis, Klausner said.

Public pensions have proved more durable than private plans in part because governments have the flexibility to make up for pension shortfalls by raising taxes — an option corporate pension sponsors lack. Klausner also said independent actuaries review the nation's 2,700 public pension plans to ensure they can meet obligations. In instances when a government failed to contribute enough to keep a pension fund healthy, legal challenges have succeeded in restoring full funding, Klausner said.

— Mark Jewell

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Q: Do savings bonds make more or less sense in an economy like this one, where interest rates and inflation are low? What about when inflation rises?

A: Savings bonds make sense for the investor who doesn't need much cash flow and wants safety. But they're not particularly attractive right now if you're looking to make a savvy investment for the long term.

A Series EE bond purchased between now and the end of October earns just 0.7 percent per year for as long as you hold it. The exception would be if you hold the bond for 20 years, in which case the value is guaranteed to double. In that instance you'd be assured a return of 3.5 percent. But if you're investing for that long a timeframe, you should probably aim higher.

You could also purchase Series I savings bonds, which have some inflation protection. But if you buy one now you'll earn nothing for inflation for as long as you hold the bond, due to the fact the inflation rate is currently below zero. This will be a better investment as inflation rises.

Depending on your time horizon, other alternatives to consider are high-yield savings accounts, CDs or Treasury Inflation Protected Securities (TIPS), advises Greg McBride of bankrate.com.

— Dave Carpenter

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Q: I understand there were some changes in the reverse mortgage program recently. What were they and who do they help?

A: As part of stimulus legislation signed by President Obama in February, the loan limit on reverse mortgages was temporarily raised to $625,500 from $417,000, subject to renewal by Congress at the end of the year. That helps senior homeowners (reverse mortgages are for homeowners age 62 and older) who have homes with higher values.

Under other changes in the past year, reverse mortgages can now be used on a condominium and, for the first time, to purchase a new home.

Eric Bachman, founder of Oakland, Calif.-based Golden Gateway Financial, says the changes make reverse mortgages even more compelling for older Americans interested in downsizing or moving to another location. It also means, he says, that seniors in financial distress or those simply planning ahead can put more of their home equity to work for them because of the higher loan limits.

Some other changes this year aren't perceived as so consumer-friendly.

Fannie Mae, the government-backed mortgage company, made changes in April that allow for higher margins for reverse mortgage lenders. Margins are the interest rate spreads a lender makes on the loan, so higher margins mean higher interest rates. Also, the margin can change from the time a borrower submits an application and the loan is funded, which can be up to 120 days.

— Dave Carpenter

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The New “R” Word: Reset

The New “R” Word: Reset

Over the past 18 months, we have been inundated with bleak tales of economic strife. Inevitably, the media has worn us all thin with their never-ending string of bad news. Yes, we are stuck in the thick of a very painful recession. Unemployment rates are flirting with double digits, fears of inflation are beginning to handcuff the government and their financial actions, political parties are torn and bulls are all but extinct on Wall Street. Instead of sitting on the sidelines and waiting for struggling newspapers to drop good news on our porch, I argue it is time for us to stop fearing our economy. I argue it is time for a reset.

After someone has a disease that is critical, but not terminal, they take a reset of their life and gauge what they have to work with. Although this would classify as more of an emotional reset, the same principle can be applied to our current financial struggles in terms of an economic reset. This is where we are right now, both here in the United States and in many parts of the world. Prices have reset. The sooner we realize this and the sooner we gauge what we have to move forward with, the faster we will regain the confidence our capital needs to move forward.

Our economy will recover, but it will not sporadically jump to pre-recessionary levels. Our core growth will be more conservative. Cheap credit will become a thing of the past. The availability of extreme financial leverage will be nonexistent. Instead of returning to business as usual, we will work to create a new world. One with regulations that help our economy, not inhibit it. We will all return to spending, but accountability will be involved. We will assess what tools we have and what tools we need. At that time, we will be able to help our economy grow responsibly. It is not something to fear, but something to embrace. And there is no time better than now to begin.

Much more on resetting our economy in future Powell Perspectives.

Start Your Own Business, Just Don’t Expect to Buy a House

Unable to find steady employment, many Americans are starting their own businesses out of necessity. Small businesses help create new jobs. Nationally, small businesses comprise half of all private-sector employment and they have created about 70 percent of new jobs each year over the last 10 years. Simply put, entrepreneurs drive our economy. But, when it comes to acquiring a home loan, self-employed business owners might as well be lepers.

The qualifications for obtaining a home loan through the Federal Housing Administration (FHA) require that self-employed borrowers have two years of self-employment experience in the same field. However, if a small-business owner has been self-employed for more than two years, then lenders need to see a consistent increase in the business owner’s earnings. If the borrower has been self-employed for less than two years, then past W-2 information is often considered irrelevant unless they still hold their W-2 job. And, since underwriters rely on tax returns as proof of a borrower’s income, year-to-date income is worthless until it is filed with the IRS. Many times, the self-employed borrower is out of luck, especially when banks are tight with lending.

Banks view the self employed as “risky” because their job security is wobbly and their incomes can vary widely from month to month. Because of this unfavorable view, self-employed persons are forced to explore other non-traditional options to purchase a home. The most-feasible of these options include owner financing and lease-to-own properties.

Looking for a faster sale or attempting to move a property that is otherwise difficult to sell, owners will sometimes offer financing themselves. Owner financing can help keep the banks out of the picture and get self-employed individuals on their way to home ownership more swiftly. While owner financing may offer easier qualification requirements and less paperwork, it is crucial to not get swept away in a sour deal. Having a real-estate attorney help to complete the transaction is crucial and will keep both parties informed about the details of the deal.

Another option for self-employed individuals is to find a lease-to-own property. With a lack of buyers, many condo complexes are offering lease-to-own options on their units. After the renter has agreed on a purchase price with the seller, the renter is allowed to move into the property and make monthly rent payments to the owner. This option allows the renter to build equity every time they pay their monthly rent. At the end of the lease, the renter can apply the funds that have accrued toward the purchase price of the property. Plus, by that time, the self-employed renter has had time to acquire the two years of tax returns needed to acquire a conventional loan.

Patience is often the best tool for someone who is self employed and looking to obtain a home loan. Although they may miss out on timely investment opportunities, a self-employed individual can use their waiting time to explore their home-buying options. This way, they will be well-versed in the home-buying process by the time they meet the requirements set forth by loan underwriters.

The way the system is set up, it makes more sense to be a W-2 employee for a number of years, then purchase a house and then risk it all to start your own business. But, entrepreneurs are a spontaneous and confident bunch. They do not always fit into the confines of structured systems. Therefore, we will continue to allow them to fuel the driving force behind our economy, we just will not help them purchase a place to live.

Mortgage Fraud Burns

Last week, the FBI released its 2008 Mortgage Fraud Report. The aim of the study was to provide insight into mortgage fraud crimes perpetrated during 2008. The Mortgage Fraud Report addressed “current mortgage fraud projections, issues, and the identification of mortgage fraud hot spots.”[i] Not to anyone’s surprise, the report suggested that mortgage fraud continued to be an elevating problem throughout 2008. Practically all of the findings indicated an increase in mortgage-fraud activities.

Although a single, precise instrument to determine mortgage fraud does not exist, there appears to be a positive correlation between mortgage-fraud activity and distressed real-estate markets. Therefore, mortgage fraud thrived in the stumbling housing market of 2008. According to the report, mortgage fraud is defined as “a material misstatement, misrepresentation, or omissions relied upon by an underwriter or lender to fund, purchase, or insure a loan.”[ii] Suspicious-activity reports (SARs), which are one of the government’s main weapons against financial crimes, increased 36 percent to 63,713 during the 2008 fiscal year, up from 46,717 in 2007.

Among the most popular mortgage-fraud scams are deceitful short sales, unnecessary bankruptcy filings, reverse-mortgage schemes and unlawful loan modifications. According to the FBI’s website, mortgage fraud is categorized under two main labels: fraud for profit and fraud for housing. Fraud for housing is typified by a borrower who provides false information in order to qualify for a loan. As long as borrowers are clear and honest throughout the loan acquisition process, they should have no worries of being a victim of fraud for housing. However, the FBI cautions borrowers of deceitful professionals who try to coerce them into reporting false information on their documentation. Even though you may be following the advice of a “professional,” you could still be held accountable for the crime.

The second category of mortgage fraud, fraud for profit, is committed by industry insiders who take advantage of borrowers for their own financial gain. Fraud-for-profit schemes include motives to revolve equity, falsely inflate property values or issue loans based on fictitious properties. Existing investigations suggest that “80 percent of all reported fraud losses involve collaboration or collusion by industry insiders.”[iii]

In order to avoid becoming a victim of a fraud-for-profit scheme, the FBI offers the following tips:

* Choose your mortgage broker/banker carefully

* Arm yourself with basic mortgage knowledge

* If something is too good to be true, it probably is

* Never sign a blank document or a document containing blank lines

* Never sign over the house deed “temporarily” for a fee to anyone

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Michigan Low Mortgage Rate Online Hubs Spreads Information

Detroit, Michigan – Home owners can breathe a sigh of relief thanks to some new online tools to help them locate lower mortgage rates. There are three new up to the minute online news hubs that deliver some real value to Michigan home owners. Now they can keep up with the latest news from Oakland county when it comes to refinancing their homes, getting a new mortgage quote, reverse mortgage questions, and even how to save on auto insurance.



The online news hubs were the creation of Ted Cantu, (I Cantu Media LTD) and is an extension of the popular Michigan based mortgage website, http://www.getmelowrates.com/. These sites feature videos from the Bloomberg network, CNN, and news items from popular blogs and promotional clips from Get Me Low Rates. The network hub is something that Cantu and Co. have been doing for a while. The magic ingredient is working with a strong level of RSS feeds.



“Living in Michigan during these changing times has been challenging to say the least. These tools are designed to make the online user more comfortable. They deliver some incredible resources that may otherwise go somewhat unnoticed.” says online innovator, Ted Cantu.

Michigan home owners can now access straight forward information on how to work with property lenders, bank institutions and mortgage specialists. They will have access to up to the minute news on getting low mortgage rates in Michigan.

“The beautiful thing about working with this technology is that these hubs will change information on a daily basis. We suggest that the user bookmarks them in their web browser. Fresh news gets pumped in daily keeping the reader clued in on what’s happening around them. It is a great way to understand the economic climate of Michigan.”

You can access the three hubs here:
http://hubpages.com/hub/Michigan-Low-Mortgage-Rates



http://www.squidoo.com/low_equity_home_loans_michigan


“We will be adding more of these Michigan mortgage hubs over the next 2 weeks. Eventually our goal is to create an online resource library for online searchers. This is a very innovative project and it is designed to help many Metro Detroiters” adds Cantu.

For additional information regarding Get Me Low Rates and Ted Cantu you can contact them at 248.631.9211. You can also visit their website at http://www.hotmetrofinds.com.

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