Reverse Mortgage Frequently Asked Questions

Thinking about getting a reverse mortgage?  Read Below for some answers to some common questions.  Call me today to apply, or if you have additional questions at 1-866-777-1865.

What is a reverse mortgage?

A reverse mortgage—or a Home Equity Conversion Mortgage (HECM)—is a special type of home loan that allows a homeowner to convert a portion of the equity in their home into cash.  It allows homeowners to eliminate monthly mortgage payments* and even gain tax-free** funds without losing the title to their home. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer live(s) in the home as his principal residence. Liberty focuses exclusively on FHA-insured HECM reverse mortgages.

How do I qualify?

You must be 62 or older and own a home with sufficient equity that is your primary residence. Generally, there are no credit score requirements. If you currently have a mortgage, that’s okay!! — we can pay it off with the reverse mortgage loan proceeds.

How can I  use the money?

Once any existing mortgage is paid off, the net proceeds from a reverse mortgage can be used for any purpose, from making ends meet to living your retirement dreams. The top reasons borrowers typically give for using their funds are:

• Paying off debts, primarily mortgage and credit cards
• Home repairs and remodeling
• Living expenses
• Travel
• Health care or long-term care
• Easing the financial burden on their children
• Grandchildren’s education
• Hobbies

Will I lose my home?

You remain the homeowner and can stay in the home for as long you desires. The HECM program is regulated and insured by the FHA. You will not be forced to sell or move. And no payments are due on the reverse mortgage until you no longer lives in the home as your primary residence. You must also continue to meet the obligations of the loan such as paying property taxes and insurance and maintaining the home according to FHA guidelines.

If no monthly payments are required, how is the reverse mortgage paid back?
The loan is paid back when you move out of the home, sell it, the last borrower on title passes away or when the borrower fails to meet the obligations of the loan.


What if I want to leave the home to my kids?

You can still leave it to your children or to anyone you choose. Your heirs can pay off the loan any number of ways, including:

• Selling the house.
• Refinancing the debt.
• Using other funds to pay off the reverse mortgage.

How much cash can I receive?

The amount depends on you age; current interest rates; and the lesser of the appraised value of the home, the sale price, or the maximum lending limit.


Are there any costs?

As with any loan, there are closing and other costs, most of which can be financed as part of the loan. The only out-of-pocket expense is the cost of the HUD-required counseling.


Will I have to pay any taxes?

In general, the money received should be tax-free as it is not considered income by the IRS. You should should consult your financial adviser and/or CPA and appropriate government agencies for any effect on taxes or government benefits.
Will this loan affect my Social Security or Medicare benefits?
A reverse mortgage loan usually does not affect eligibility for entitlement programs, such as Medicare or Social Security benefits. However, some needs-based government benefits, such as Medicaid and Supplemental Security Income (SSI), may be affected by a reverse mortgage loan. The borrower(s) should consult a qualified professional to determine if there would be any impact to their government benefits.


* The borrower(s) must live in their home as their primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.** The borrower(s) should consult their financial adviser and/or CPA and appropriate government agencies for any effect on taxes or government benefits.

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Affordable Non-Traditional Mortgage Products Returning - Interest Only Mortgages

Welcome back!  Before you read any further, I encourage you to read about Adjustable Mortgages here: http://homebuyingguru.blogspot.com/2013/09/affordable-non-traditional-mortgage.html Interest only loans often are adjustable loans so it is good to fully understand an adjustable mortgage before you go on to read about interest only options.  

I find that often, clients will confuse an interest only loan with what is called a "Negative Amortization" loan.  This was most commonly called the "Pay Option" loan or the "Pick-a-pay" loan.  With this loan you had four payment options, one that was a 15 year loan payment, a 30 year loan payment, an interest only payment and a "Minimum Payment."  The minimum payment in a pay option loan would actually increase your balance every month because you were actually paying less than the monthly interest.  For example, if your interest only payment was $1,000 and your minimum payment was $600, the bank isn't going to just hand you that extra $400 in interest for free. So, it gets tacked on to the balance of the loan.  A regular interest only loan DOES NOT DO THIS.  

Now that we clarified that, let me explain that what a typical interest only loan is.  Let's start with a standard fixed rate interest only loan.  Most people know what a 30 year fixed loan is, but let me explain to make sure.  Most home loans have either 15 or 30 year term.  That means if your loan is fixed for 30 years, you have the same rate the whole 30 years of the loan and typically the same payment.  However, a 30 year fixed interest only loan usually will not have the same payment for the life of the loan as the interest only feature is only offered for a maximum of 10 years.  

Let's look at some numbers to explain.  Take a $200,000 30 year fixed loan at 4.625%.  Traditionally the mortgage payment for this loan will be $1,028.28 for 360 months (30 years).  With the interest only option, if the rate is the same, you can pay as little as $770.83 per month for the first 10 years.  After that, it "Recasts" meaning whatever your balance is at that time determines what your payment is over the remaining 20 years.  So, if you don't refinance and you have made only the interest only payment during that period, you essentially have a 20 year fixed loan at that point at a rate of 4.625%.  That would mean your payment would be $1,278.83 for the remaining 240 months.  

The advantage of this option is that typically people will be making more money in ten years than they are currently.  So, they exchange the comfort ability of the lower payment now, for the higher payment later but still retain a fixed loan and pay their house off in 30 years.  However, people rarely keep a loan longer than 10 years.  Typically they move or refinance during that period so often I encourage the 10/1 ARM Interest Only loan as it will usually have a lower rate than the 30 year fixed.  There is also a 5/1 ARM Interest Only option as well as a 7/1 ARM Interest only option. (If this doesn't make sense to you, I encourage you to read the article I linked at the top of the page or contact me).  

The advantage of the 10/1 ARM Interest Only loan is that the rate adjusts at the same time you loose the interest only feature.  Typically this is when people will refinance anyway because many don't want to pay the 20 year payment even if the loan was fixed.  As explained in the previous article, it is possible that your payment may even drop with the adjustable mortgage as well.  

I hope this helps to clarify this loan option.  If you would like to know more, please contact me at 1-866-777-1865 or email me at shawnkrumpe@gmail.com.  You can check me out more at www.financehomestoday.com.  

Affordable Non-Traditional Mortgage Products Returning - The ARM

Between increasing interest rates and rising home costs, many of you are feeling like you are getting squeezed out of the home-buying market.  There are many non-traditional mortgage products available I will be explaining to you in detail in the next few articles to help you; explaining the positives and negatives of each so you can make an educated decision when you go to buy, or refinance your home.  

Today I will discuss a basic option for you; The Adjustable Mortgage.  Many people run scared when they hear this option.  If you are one of these people it is very important you read further.  I wont stand here and tell you this mortgage is for everyone, but many people I talk to only plan to stay in their first home for four to five years.  Even clients who are buying their second or third home often will move prior to their ten year mark.  I've even helped clients buy a second home less than two years after buying their first.  So let me ask you; if your home loan is $200,000 why would you pay an extra $116 per month to have your loan fixed for 30 years, when you plan on moving before your rate adjusts?  (Based on current rates and differences for a 5/1 ARM v. a 30 Year Fixed with similar loan costs)

However, many people tell me they aren't sure they are going to move in less than five years. I understand that life is full of surprises and it is hard to plan around all of them.  In these cases, perhaps you might look at an adjustable that is fixed for seven years, instead of five?  Or maybe 10 years?  The savings isn't as large but I very rarely run into a client that buys their first residence and occupies it longer than 10 years.  Usually, in that time-frame, there is some need or desire to upgrade. Another thing to consider is that in a normal real estate market, home prices typically rise about five percent per year.  This opens the door to refinancing.  Guess what, if you paid higher loan costs, or took that higher 30 year fixed rate so your mortgage was fixed for 30 years, and now you want cash out, and you refinance again, you are going to have to pay the higher loan cost all over again.  

Now, I'd like to look at what happens to an adjustable mortgage AFTER the fixed rate expires.  First lets look at conforming loans.  Let's say you got an adjustable mortgage that was fixed for five years in June of 2006.  At that time, this mortgage, called the 5/1 ARM was averaging about 6.22% and the 30 year fixed loan was around 6.68%.  So the payment on a $200,000 loan would have been $1,227.53 and the fixed loan would have a payment of $1,287.90.  So in 2006, it didn't save as much at first, but lets look what would happen if you still had that same loan. 

First, let me explain, these loans have three important characteristics when determining what the adjustment will be; the Index, the Margin, and any Caps.  The index most commonly called the Six Month LIBOR (London Inter Bank Offering Rate), is the base rate.  This is what adjusts monthly.  The margin is essentially the profit the bank makes on the loan, and on a typical adjustable mortgage is 2.25% but this does vary between banks and loan programs. (Subprime margins could get as high as 8-9% which is why adjustable mortgages have developed such a bad stigma)  To get your actual rate you would add the index to the margin.  So, if your loan adjusted five years after you got it in June of 2011, your rate would would have dropped to 2.65313% (2.25% + LIBOR which was 0.40313% at that time).  Then in June of 2012, it would have adjusted to 2.9864%, and in June 2013 to 2.66426%.  So currently, you would be paying $807.43 per month instead of $1,287.90.  Not bad, right?  

The final important component of an adjustable loan are the caps.  Usually you will see three numbers after the 5/1 ARM designation.  Most commonly on conventional loans, you will see 5/2/5.   The first number is the maximum amount the loan can change the first time it adjusts.  The second number is the maximum it can change each year after it adjusts the first time, and the third number is the maximum it can change in TOTAL.  So, if you rate started out at 6.22% like in our example.  The first time it changes the highest it could go to a maximum of 11.22%; the lowest it could go would be 1.22%.  After that first adjustment, it can only go up or down a maximum of 2% so even if rates skyrocket or plummet, it wont change more than 2% annually.  And the absolute highest it will ever go is 11.22%.  So you are thinking 11.22%! That is high!  Well I can tell you in the past 10 years, LIBOR has never been high enough to make your rate anymore than 7.8882% with that 2.25% margin we've been using.  Not bad, right?  In fact, the AVERAGE LIBOR rate over the past 10 years is only 2.2838% which would make your mortgage 4.5338% which is far lower than the average 30 year fixed loan over the past 10 years.

Hopefully this helps clarify some key points with Adjustable Mortgages. Please note, not all adjustable mortgages are associated with LIBOR.  For example, most FHA loans are tied to the Treasury note.  I would be happy to explain this in more detail with you if you like.  Please feel free to call me at 1-866-777-1865 or email me at shawnkrumpe@gmail.com or check me out at www.financehomestoday.com.

Interest Rates and Market Fluctuations

As a seasoned loan originator, I tend to get a few questions asked of me repeatedly. Besides, "Do you think the housing market has hit a bottom?" I think the question brought up most is, "What do you think interest rates are going to do?" First, let me start by saying that no one really knows for sure what is going to happen to rates. However, if you watch the market closely, you can at least try to figure it out and be a little ahead of the curve when making a decision as to refinance, lock a loan in, etc. Here are a few things you can watch to get a good idea of what rates are doing and the direction they may be heading.

The yield on the 10-year treasury note is one of the largest market indicators showing the direction rates are heading. Click Here to see the 10 Year Treasury Note Yield Although, not directly tied the bond market, if the bond-yields are heading up, rates will more than likely follow.  Another good link is the FannieMae coupon: http://www.bloomberg.com/quote/MTGEFNCL:IND Rates are almost directly tied to this however, watching doesn't give you lot of time to react to a change because they usually have already been affected if a major rise or fall takes place in the coupon.

So, the next question is, what will make the treasure note yields change?  Please realize that the yield is another way of saying what interest rate you will get by purchasing a government bond.  When the economy is doing well, bond yields generally rise. People pull their money out of bonds and put them in stocks, or into their businesses which makes the government raise the yields to get people to invest back into bonds. Currently, the European debt crisis is having a significant impact on mortgage rates. As their news worsens, investors are more likely to buy US Treasuries instead of their European counterparts. Why? Because they feel the US is less likely to default on the debt which means less risk in US bonds.

One thing I often check is the weekly economic calendar.
Click here to see the economic calendar For example, if unemployment numbers are coming out on Friday and you expect a big drop in unemployment for whatever reason. It might be good enough news that people will pull their money out of bonds, put it in the stock market, and therefore, cause the yield to rise and more than likely make rates rise as well.

So, this just scratches the surface of all the various indicators of what rates may or may not do. In no way should you use this data to base any sort of financial decision on. It is simply meant for educational purposes only. If you have any questions, or would like to know more, feel free to contact me at 1-866-777-1865.

Why you might consider refinancing soon after buying a home

As you may have heard in the news, mortgage rates are plummeting, yet again.  Despite what has happened to the S&P United States credit rating many investors still feel like our bonds are a much safer investment than other places their money could be stored.  What does this mean for mortgages?  They realistically have hit one of their lowest points in history.  Check out what you can find with today's rates?

• 15 Year fixed loans as low as 3.5% with ZERO points*
• 30 Year Fixed loans as low as 4.0% with ZERO points*

What does this mean?  Not only is it the best time ever to buy, but if you have previously purchased a home in the last year and have a 4.75% or higher it is worth looking to see if you could save money by refinance.  There are even government programs for qualified individuals with credit scores as low as 620!!!  Please check out my website www.shawnkrumpe.com or contact me, Shawn Krumpe with PennyMac Loan Services at (916) 776-6484 for more details or if you have any questions.

*Rate examples are for conforming loans (< $417,000 and > $75,000) loans in California  with zero origination points, borrower FICO score of 740 or greater with a loan to value (LTV) of 75% or less on a single family owner-occupied residential property. Rates and APRs may vary depending on loan details including but not limited to points, loan amount, loan-to-value, borrower credit, income, expenses, property type, occupancy and geography.

Buying a Home in Yuba City

So you are you looking to move to Yuba City?  Yuba City has become a growing place to live as a more affordable and more rural alternative to Sacramento.

If you are simply looking to search homes in Yuba City you have come to the right place! Search Yuba City Homes For Sale HERE

Here are some quick facts about Yuba City.  As part of Sutter county the population as of 2010 was 43,209 with a 17% population change over the last ten years.  The climate is considered Mediterranean with mild winters with light rainfall.  The summers are usually dry and have very low humidity.  Evenings often stay cool due to the Delta breezes.

If you are looking to find out more about buying a home in Yuba City, please contact me today at (916) 776-6484!