Taking Out A Mortgage
What is a mortgage and when do you need it? It is a loan (that is usually taken out from a bank) that you get so you can buy property
.
Whether it is a house, apartment, or just land, you can obtain the financing needed to own it personally. You have to qualify for the loan before you can buy the property.
Having good credit and a good financial history will help you qualify so that the bank knows that they can trust you to borrow their money. No one wants to lend out money to someone that has a history of not making payments on time or even paying them at all.
Why are banks and other financial institutions willing to loan out their money? Because they can gain interest on the principal amounts that they lend to people.
Depending on who you borrow from, the interest rates can differ. But for the most part, all of the rates are going to be very similar because of the competition to get people to borrow from that specific institution.
Usually the loan is paid back in full in thirty years or so depending on which plan you set up with your bank. Interest is included along with the principal amount so it is very beneficial for you to pay them back as fast as you can because it will save a lot of money.
A reverse (or lifetime) mortgage is a loan that is only available to seniors (people over the age of sixty-two). These are very dangerous and are not encouraged.
The senior that owns the land is not obligated to make any payments and it is deferred until they die, the home is sold, or they leave. It releases the home equity (or market value of the home) in the property in either one big lump sum or as separate individual payments from the "owner".
Basically you are transferring some of the equity on your home into cash. You are allowed to spend this money however you like and you do not have to pay it back until the home is no longer your principal place of residency.
How do you qualify? You must be at least sixty-two years old, already own your home or at least have more than sixty-five percent paid off, and you still live in the house.
So the lender gains back ownership on the land and the previous "owner" no longer owns part of it if they do not make payments back on the land. Basically you let the debt on it continue to increase every month and all of the interest is added to the lien on the land until you start making payments back on it to get rid of the reverse loan.
A lien is form of security that is put on the land to secure a payment of any debt that has accumulated on the property. When you agree to buy a home with a lien on it, the debt is transferred to you and you are now responsible to pay it back yourself.
That is why it is important to clear all liens on any house you want to buy before you sign the contracts. If the liens cannot be cleared, then look for a different house that is debt free already.
How much money can you get out of your house? This depends on how old you are (the older you are, the more you can get), the current interest rate, and how much your house is worth.
The lower interest there is and the more your home is worth, the more money you can borrow. The loan does need to eventually be paid back, but you will not have to make any payments until you move out of the residence.
If you die before the loan is paid back, then the estate is inherited to your family or whoever you left it to in your will and they decided on what they want to with the house. They can sell the home and use however much of that money that they need to pay back your loan and just get the money from the remaining equity on the house if there is any left.
by: Tom Selwick
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