Reverse Mortgage:
A reverse mortgage is a home loan designed for seniors
who already own a home and would like to use some of the
home’s equity to supplement their retirement income. This
mortgage is called “reverse” because the payments are
reversed – instead of the borrower making payments to
the lender, the lender makes payments to the borrower.
The loan is paid back when either the borrower sells the
home, permanently moves out of it or passes away. The
amount a person qualifies for depends on his or her age
and the value of the home. There are no income restrictions.
The AARP has additional information on their website:
www.aarp.org/revmort.
Adjustable Rate Mortgage (ARM):
Adjustable loans offer very low initial interest rates
and payment rates. ARM Loans are available in terms of
30 or 40 years. Interest rates are calculated by adding
the index value to a fixed margin. This is done on a monthly,
semi-annual or annual basis, depending on the type of
ARM. The index could be one of many. The most common are
the 11th district cost of funds, LIBOR (London Inter-bank
offered Rate), 12 Month Treasury Average (MTA), Constant
Maturity Treasury (CMT) and the Cost of Savings Index
(COSI).
Fixed Rate Loans:
These loans are the most common and are available in terms
of 10, 15, 20, 30, & 40 years. The interest rate remains
the same throughout the loan term.
Home Equity Line of Credit (HELOC):
Typically used as a second trust deed, loan amounts are
from $25,000 - $1,000,000. Loan terms vary from 5, 10,
15, & 30 years with a minimum payment of interest
only during the draw period. With a HELOC, your payment
is based on the amount of money you actually draw from
your account. For example, if you have a Line of Credit
in the amount of $100,000 and you use $25,000, your payment
is based on $25,000. The balance of $75,000 is your remaining
unused portion and is available when you need it during
the draw period of you loan. Draw periods are usually
from 5 to 10 years in length. After this draw period has
expired, the loan payment becomes a principle and interest
payment for the remaining term of the loan.
The Borrower is issued a credit card or
given a checkbook or both, to access their Line of Credit.
The interest rate is calculated by adding the index (usually
the Wall Street Journal Prime Rate) to a fixed Margin.
HELOC’s are used for purchase money second
trust deeds, to consolidate debt, pay for remodeling or
just held as an emergency fund.
Interest Only Payments:
This option allows for a payment that only pays the interest
on the loan. The principle balance remains the same. Interest
only payments are typically available in both 30 yr Fixed
Rate programs and Hybrid or Intermediate ARMS and HELOC’s.
Intermediate or Hybrid ARM’s:
The initial interest rate is fixed for a period of time
ranging from 2, 3, 5, 7, or 10 years. After this fixed
period expires, the loan converts to an adjustable rate
mortgage. After the initial adjustment, the rate would
adjust on a semi annual or annual basis. The borrower
is protected with rate cap maximums.
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