| The Option ARM Loan: Turning the American Dream into a Nightmare
At first glance, an Option ARM loan can seem like a great opportunity for someone who is looking to purchase a home with the lowest monthly payments possible. An Option ARM mortgage starts out with low "teaser" interest rates that are only good for a month but are extremely appealing. An Option ARM loan also offers the borrower his choice of payment type: a minimum payment, an interest payment, or an amortizing payment. And the minimum payment can be seductively low, offering a borrower with limited cash flow the chance to buy a larger property than he expected to be able to afford. The problem is that if a borrower makes only the minimum payment on his Option ARM mortgage each month, he will quickly find that he is sliding into debt. As the teaser rate expires and the actual interest rate rises, the borrower's minimum payments will not make a dent in the actual loan principal nor the interest that is rapidly accruing.
Fixed rates return to reverse mortgages
Many older homeowners prefer reliable, dependable mortgage interest rates. It helps them plan their monthly financial calendars, especially when they are battling the challenges of paying for health care on fixed incomes. Fixed-rate mortgages have been absent from the reverse-mortgage scene for more than decade, as lenders relied primarily on adjustable-rate mortgages insured by the U.S. Department of Housing and Urban Development. These mortgages, known as Home Equity Conversion Mortgages (HECMs), account for nearly 85 percent of the reverse market. BNY Mortgage, which recently announced it would trim the interest rate charged on the adjustable-rate HECM, introduced two fixed-rate reverse-mortgage products on March 5. The first, called the New Generation HECM, is similar to the current FHA/VA rate and hovers near 6.5 percent, not including the mandatory mortgage insurance premium.
MAIL BAG: Reverse mortgage pays as long as you're alive
Q: I have two questions about how senior citizen reverse mortgages work. (1) How are the monthly payments to the homeowner calculated by the reverse-mortgage company, and (2) what happens when the homeowner outlives the market value of his house? If that happens, does he continue to live in the house and receive monthly payments although the result will be a loss to the lender? -- Dale S. A. Each of the three nationwide reverse-mortgage lenders, FHA, Fannie Mae and Financial Freedom Plan, has a different formula to calculate payments to the homeowner. The age of the youngest borrower (you must be at least 62), the adjustable interest rate at the time of obtaining the reverse mortgage and the home's market value are used. To compare how much you can receive from each plan, on the Internet go to www.FinancialFreedom.com and enter your age and estimated home value.
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