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As with any type of loan, a borrower’s interest rate will have a significant impact on his or her reverse mortgage. Reverse mortgage rates affect borrowers’ proceeds and payment options, as well as the overall affordability of the loan. Before pursuing a loan, potential borrowers should make sure they understand reverse mortgage interest rates.

Reverse Mortgage Rates: Fixed Vs. Adjustable Rates

Reverse mortgages are given either fixed or adjustable interest rates. Fixed rates are those that remain constant over time. Regardless of changes in the market, a fixed rate will neither increase nor decrease.

An adjustable interest rate is one that adjusts according to a certain financial index. The two indexes lenders use to calculate rates are the London Inter-Bank Offered Rate (LIBOR) and the Constant Maturity Treasury (CMT). However, because the LIBOR is an international index and typically lower than the CMT, it is substantially more popular. Borrowers who choose an adjustable rate will see their interest rate increasing and decreasing as the market fluctuates.

While fixed rates sound safe, they do limit the payment options available to seniors. Borrowers who choose a fixed interest rate must receive their loan proceeds as a lump sum. Adjustable rates give borrowers several additional options. Proceeds on an adjustable rate reverse mortgage can be given as a line of credit or in fixed monthly installments. Because a line of credit will actually increase as the home appreciates, borrowers who choose this option sometimes receive more than if they had chosen a lump sum. Borrowers who choose monthly payments might also profit more over the life of their loan.

How Reverse Mortgage Rates Are Calculated

As previously stated, adjustable reverse mortgage interest rates are based on a specific financial index. However, this is not the only factor that determines rates. Lenders also add a margin to this index. For example, if a loan is said to be an HECM LIBOR 300, it is a federally-insured loan based on the LIBOR index with a 3% margin. If the index is 1.25%, the borrower would be given a 4.25% interest rate. The margin is the markup necessary to ensure that the lender’s operating costs are covered. Margins are fairly consistent amongst lenders and do not leave much room for negotiation. While this is unusual, borrowers’ credit score and assets have no bearing on the reverse mortgage rates they qualify for.

Fixed rates, on the other hand, are not based on a specific index. While these rates also vary by lender, they are fairly consistent. To avoid confusion, borrowers who choose a fixed-rate loan will be provided with a Good Faith Estimate (GFE) that confirms their rate.

Fortunately for seniors interested in a loan, reverse mortgage interest rates are at an all-time low. This means several different things for borrowers. The first is that borrowers are paying less in interest. Secondly, lower rates means that seniors are enjoying larger payouts. Regardless of whether seniors choose a fixed or adjustable-rate loan, a low interest rate will help them get the most from their home equity.

Many homeowners are struggling to make their monthly mortgage payment. Every income level has been feeling the effects of a struggling economy and paying the monthly mortgage has become harder to do. Here are some tips for renegotiating a mortgage into a more affordable monthly payment.

Right now, over 1 million homes that have been foreclosed on are for sale. These homes represent over 25% of the available realty for sale right now. These homes are not just from low income neighborhoods either. Many of these homes are from more affluent areas that have been hit hard by falling home prices. Many homeowners have negative equity and are upside down on their home loan.

Since so many homeowners are struggling, many mortgage lenders and banks are now willing to renegotiate home loans so that foreclosures are avoided and homeowners can afford to make their monthly mortgage payments on time. Also, new mortgage refinancing options exist for nearly homeowner, in any financial situation, thanks to President Obama’s housing stimulus plan. This stimulus plan would allow nearly 5 million homeowners the chance to get approved for low interest rate mortgage refinancing that they would not be able to qualify for otherwise.

Here are some tips for homeowners who wish to renegotiate their home mortgages.

- Do not skip any payments or allow it to happen.
In the past, homeowners needed to miss a couple of payments in order to get a mortgage modification approval. These days though, things have changed. The big 3 mortgage lenders, Bank of America, Citigroup, and JP Morgan Chase announced a plan that calls for them to contact a struggling homeowner before they fall too far behind in their payments. Now, homeowners with reduced incomes, no job, or other financial problems can save money every month on their home loan payments simply by contacting the mortgage lender or bank and documenting their financial burdens.

- Think about a mortgage refinance.
Home loan refinancing may allow a homeowner the chance to get into a lower interest rate. Most homeowners pay more in interest rates than what is available now. Refinancing a mortgage will allow a person to take advantage of the low interest rates available now. Many homeowners have 10% equity in their home, which is required to get a beneficial mortgage refinance approval. Many homeowners will also need to have a credit score that is at least 680 in order to fully benefit from refinancing. While this may not be the best option for every homeowner, it should be considered.

- Don’t take things personally.
Many homeowners are not even able to make mortgage payments even if they were dramatically reduced. If you are capable of making your home loan payments, you are much further ahead of the curve than most people. Refinancing or mortgage modification would just be the icing on the cake and make life easier and is not necessary in order to prevent a foreclosure. At least you still have your home and are not being forced out of it due to foreclosure or default. Many mortgage lenders and banks do not want to deal with more foreclosed properties and are anxious to work with a homeowner to find a deal that everyone benefits from.

Many homeowners are going to be able to save a lot of money every month by taking action and getting a mortgage refinancing or modification. This is one of the easiest times in history to get approved for a super low interest rate mortgage through refinancing or modification programs. Homeowners should carefully consider all of their options and contact a variety of mortgage lenders or banks to ensure that they are getting the best deal possible. Help is available but it is up to the homeowner to find and apply for it.

JAMAICAN REAL ESTATE TODAY

Thinking of Remortgaging?

Remortgaging is basically switching your already existing home loan to another building society or other lending institution; you don’t have to be in the process of buying a new home. As well, Jamaican home and real estate owners, sometimes remortgage their properties for a larger amount, as an alternative source to obtaining a secured loan and/or in an effort to reduce those monthly payments, especially if you find yourself in a situation where it is becoming increasingly difficult to meet the monthly amount owing on the due date. Jamaican property owners remortgage because they find interest rates on a mortgage can often be lower than those on a secured loan.

Before diving in ‘head first ‘, however, to find another lender, you should meet with your current mortgage company and discuss with them why you are actively considering another mortgage lender and, who knows, they may well come up with a better deal to keep your business, saving you a lot of time and energy. If your mortgage still has a way to go, find out if you can get a further advance from the same lending institution. If you can work a deal for lower interest rates at your current mortgage lender (or another), then you will be saving yourself a good amount of money every year.

Using a Mortgage Broker

If the value of your home has appreciated over the past few years, which is the norm especially if it is a well maintained property, you might be seriously thinking of remortgaging to get some much-needed cash for whatever reason. And, if you do decide on the remortgage strategy, it’s often helpful finding a mortgage broker who should have the entire Jamaican market well within his sights. If you have a good deal with your existing lender, however,and that institution is providing good customer service and seems keen to keep your business, as mentioned already, check to see if you can simply increase the current loan in place and avoid the time, ‘bureaucracy’ and various fees involved in remortgaging.

Ask your mortgage adviser/broker lots of questions as the broker you choose should be able to find the most reasonable rates and then you will be able to compare your lending institution’s offer with his findings. Also, when you’re comparing deals, you’ll need to find out about and take into account valuation, conveyancing and solicitor’s fees that may apply.

Your broker must also be fully conversant with all and any penalty charges such as early redemption/early exit fees that may be applicable in remortgaging, thus enabling you to make an informed decision on whether to go ahead with another lender or stick with the one in place.

But, at the end of the day, whether you decide on an increase in your loan or go for remortgaging, it’s the same result: you will owe more money and be in more debt. It’s worth remembering that interest rates can change and so can your circumstances, so the whole process and final decision needs careful thought and planning.