HECM - A Mortgage in Reverse
The Home Equity Conversion Mortgage (HECM) more commonly referred to as reverse mortgages was created by the Federal Housing Administration (FHA). These Federally insured loans are designed for borrowers over the age of 62. They truly are a mortgage in reverse. A reverse mortgage will eliminate the borrower's current monthly payment and give them access to the available equity in their home.
Over time a reverse mortgage balance will grow. The monthly payment has been eliminated and the loan will accrue an interest charge each month which is added to the balance of the loan. This type of loan is referred to as a negative amortization loan. Rather than paying down the balance as you would on a traditional mortgage loan your loan balance grows over time. Because these loans are federally insured by the FHA there was quite a bit of thought that was put into determining the size of these loans. The size of any loan as compared to the value of the home is known as the loan to value ratio. On a traditional or forward loan through the FHA you can cash out up to 85% of your home's value. The remainder, after you have paid your existing mortgage balance and customary closing cost is yours to use as you wish. A reverse mortgage's starting loan to value ratio is much lower than a traditional refinance. The FHA has a formula that takes into consideration the borrowers age, life expectancy, home value and location of the property to determine the available loan to value on a reverse mortgage. The rule of thumb is to take the youngest borrower's age and subtract 10 years to determine the maximum allowable loan to value on a reverse mortgage transaction. You should consult a reverse mortgage lender to determine what you may qualify for. The reason for this lower qualifying loan to value is twofold. First the Federal Housing Administration understands that these loans will accrue interest charges over time and the balance will grow. Second reverse mortgages were not designed for equity poor borrowers. The idea is that a typical senior has paid for their home for the majority of their adult lives and now may qualify to benefit from that increasing home equity that they have worked so hard to build.
There are four ways to access the equity in your home through a reverse mortgage program. You can take the money in a lump sum at the time of settlement as you would in a traditional loan. You can set the available equity aside as a line of credit that you can use as you need it. The line of credit option takes into account that your home will most likely appreciate over time and the available credit also increases each year that the line of credit remains open. You can use the available equity to pay your self a pre determined amount each month over a certain period of time. Finally the lender can determine, based on the available equity, a term payment. This term amount would be paid to the borrower each month for the remainder of their life.
There are some common misconceptions about reverse mortgages. One misunderstanding is that the bank owns my house when I die. If you have a traditional mortgage or a reverse mortgage and something happens to you and the payments lapse the bank does own your house and will begin foreclosure proceedings. That's the reality of any mortgage loan. Similar to a traditional loan a reverse mortgage lender will place a lien against your home for the amount owed. If you have had a legal will and testament drafted or if your property is held in trust, as is the case on a traditional loan, you are still the vested owner of the property and your heirs have a right to any available equity should something happen to you.
I lose my mortgage interest tax deduction. This one is true. This is because you are no longer paying interest instead interest is accruing against your home. The reverse mortgage has eliminated your mortgage payment. Any refund on your taxes based on mortgage interest paid will be more than made up for by the fact that there is no longer a monthly mortgage payment. Additionally, any proceeds you take from a reverse mortgage are not considered income, are not taxable and have no affect on your current social security, Medicare or Medicaid benefits.
My heirs are not over 62, if something happens to me they do not qualify for a reverse mortgage, then what? As I mentioned, you remain the vested owner of your home. If the home is left to your heirs who are under 62 years of age they have the option to sell the property or refinance the reverse mortgage loan into a traditional loan. The Federal Housing Administration considers reverse mortgages as non-recourse loans. What that means to you is that the reverse mortgage will never be greater than the fair market value of your home. Let's say you beat the odds and live a lot longer than the formulas and experts thought you would live. You live to be 110 years old. As long as you are the vested owner and the home is your primary residence the reverse mortgage will remain outstanding against your home. After your passing the reverse mortgage has grown to a balance of $125,000.00. Your heirs look at the neighborhood and surmise that they can not get anymore than $120,000.00 for the home. They list the home, accept offers and will need to have the property appraised. If it is determined that $120,000 is actually the fair market value of the home; as a non-recourse loan the reverse mortgage with a $125,000.00 balance will be considered paid and satisfied after the fair market sale of the home of $120,000.00.
The intention of this article was to give the reader a better understanding of what a reverse mortgage is, how it works and to address some of the more common misunderstandings about reverse mortgages. I am sure that you probably have more questions. If your home is in Arizona and I can be of further assistance, please visit my web site [http://www.az-homeloan.com] for additional information. The most important thing is that you contact a trusted mortgage professional to answer your questions and guide you through the reverse mortgage process.
Over time a reverse mortgage balance will grow. The monthly payment has been eliminated and the loan will accrue an interest charge each month which is added to the balance of the loan. This type of loan is referred to as a negative amortization loan. Rather than paying down the balance as you would on a traditional mortgage loan your loan balance grows over time. Because these loans are federally insured by the FHA there was quite a bit of thought that was put into determining the size of these loans. The size of any loan as compared to the value of the home is known as the loan to value ratio. On a traditional or forward loan through the FHA you can cash out up to 85% of your home's value. The remainder, after you have paid your existing mortgage balance and customary closing cost is yours to use as you wish. A reverse mortgage's starting loan to value ratio is much lower than a traditional refinance. The FHA has a formula that takes into consideration the borrowers age, life expectancy, home value and location of the property to determine the available loan to value on a reverse mortgage. The rule of thumb is to take the youngest borrower's age and subtract 10 years to determine the maximum allowable loan to value on a reverse mortgage transaction. You should consult a reverse mortgage lender to determine what you may qualify for. The reason for this lower qualifying loan to value is twofold. First the Federal Housing Administration understands that these loans will accrue interest charges over time and the balance will grow. Second reverse mortgages were not designed for equity poor borrowers. The idea is that a typical senior has paid for their home for the majority of their adult lives and now may qualify to benefit from that increasing home equity that they have worked so hard to build.
There are four ways to access the equity in your home through a reverse mortgage program. You can take the money in a lump sum at the time of settlement as you would in a traditional loan. You can set the available equity aside as a line of credit that you can use as you need it. The line of credit option takes into account that your home will most likely appreciate over time and the available credit also increases each year that the line of credit remains open. You can use the available equity to pay your self a pre determined amount each month over a certain period of time. Finally the lender can determine, based on the available equity, a term payment. This term amount would be paid to the borrower each month for the remainder of their life.
There are some common misconceptions about reverse mortgages. One misunderstanding is that the bank owns my house when I die. If you have a traditional mortgage or a reverse mortgage and something happens to you and the payments lapse the bank does own your house and will begin foreclosure proceedings. That's the reality of any mortgage loan. Similar to a traditional loan a reverse mortgage lender will place a lien against your home for the amount owed. If you have had a legal will and testament drafted or if your property is held in trust, as is the case on a traditional loan, you are still the vested owner of the property and your heirs have a right to any available equity should something happen to you.
I lose my mortgage interest tax deduction. This one is true. This is because you are no longer paying interest instead interest is accruing against your home. The reverse mortgage has eliminated your mortgage payment. Any refund on your taxes based on mortgage interest paid will be more than made up for by the fact that there is no longer a monthly mortgage payment. Additionally, any proceeds you take from a reverse mortgage are not considered income, are not taxable and have no affect on your current social security, Medicare or Medicaid benefits.
My heirs are not over 62, if something happens to me they do not qualify for a reverse mortgage, then what? As I mentioned, you remain the vested owner of your home. If the home is left to your heirs who are under 62 years of age they have the option to sell the property or refinance the reverse mortgage loan into a traditional loan. The Federal Housing Administration considers reverse mortgages as non-recourse loans. What that means to you is that the reverse mortgage will never be greater than the fair market value of your home. Let's say you beat the odds and live a lot longer than the formulas and experts thought you would live. You live to be 110 years old. As long as you are the vested owner and the home is your primary residence the reverse mortgage will remain outstanding against your home. After your passing the reverse mortgage has grown to a balance of $125,000.00. Your heirs look at the neighborhood and surmise that they can not get anymore than $120,000.00 for the home. They list the home, accept offers and will need to have the property appraised. If it is determined that $120,000 is actually the fair market value of the home; as a non-recourse loan the reverse mortgage with a $125,000.00 balance will be considered paid and satisfied after the fair market sale of the home of $120,000.00.
The intention of this article was to give the reader a better understanding of what a reverse mortgage is, how it works and to address some of the more common misunderstandings about reverse mortgages. I am sure that you probably have more questions. If your home is in Arizona and I can be of further assistance, please visit my web site [http://www.az-homeloan.com] for additional information. The most important thing is that you contact a trusted mortgage professional to answer your questions and guide you through the reverse mortgage process.
How Seniors Benefit From the Reverse Mortgage Loans
When seniors think of the reverse mortgage loans, the main issues are not the loans, but the needs, which seniors have. The needs should dictate, how seniors will organize their financial situations and whether the reverse mortgage loans fit to these plans and if yes, for which purposes they will be used.
1. You Can Decide How The Lender Will Pay You.
The targets of the reverse mortgage loans are to offer help to seniors in financial issues. The money for these needs comes from the equities of their own homes, so it is their money. Seniors can decide, whether they want the money paid as lump sums, as monthly payments, as credit lines or even as combinations of all these.
For instance, if the need is to buy a home for a child, to make a home repair and to get cash for the increased medical bills, a senior can take a part of the loan as a lump sum and a part as monthly payments. If he has no specific idea of the needs, but he is sure he needs the money, he can take a part as a credit line.
2. Seniors Can Use The Reverse Mortgage Loans To Buy New Homes.
When the children have moved away and the homes feel too big, seniors can use the reverse mortgage loans for downsizing their homes. They can buy new smaller homes. In January 2009 a new rule came effective, which orders that the appraised value is used as a bases for the loan and not the sales price.
3. Reverse Mortgage Loans Are Tax Free.
The tax free income is always nice to get, especially when you are a senior and in the need of the cash money. Everything, what the lender will pay you, all incomes, are tax free. This is one of the nicest benefits. The reason is natural. You have paid the taxes, when you earned the money to pay your mortgage.
4. A Senior Will Never Owe More Than The Value Of His Home.
This is a very important fact, a kind of a safe factor. The system takes care that the other assets of the borrower will never be used... This also means, that if the borrower has no other assets, he can still get the reverse mortgage loan. And the borrower can never owe more than the value of the equity of his home.
In many cases these loans are not the best options. This is the reason, for instance, why it is very important to go and meet the counselor. He is an expert and can tell, what is a healthy alternative for your special needs.
1. You Can Decide How The Lender Will Pay You.
The targets of the reverse mortgage loans are to offer help to seniors in financial issues. The money for these needs comes from the equities of their own homes, so it is their money. Seniors can decide, whether they want the money paid as lump sums, as monthly payments, as credit lines or even as combinations of all these.
For instance, if the need is to buy a home for a child, to make a home repair and to get cash for the increased medical bills, a senior can take a part of the loan as a lump sum and a part as monthly payments. If he has no specific idea of the needs, but he is sure he needs the money, he can take a part as a credit line.
2. Seniors Can Use The Reverse Mortgage Loans To Buy New Homes.
When the children have moved away and the homes feel too big, seniors can use the reverse mortgage loans for downsizing their homes. They can buy new smaller homes. In January 2009 a new rule came effective, which orders that the appraised value is used as a bases for the loan and not the sales price.
3. Reverse Mortgage Loans Are Tax Free.
The tax free income is always nice to get, especially when you are a senior and in the need of the cash money. Everything, what the lender will pay you, all incomes, are tax free. This is one of the nicest benefits. The reason is natural. You have paid the taxes, when you earned the money to pay your mortgage.
4. A Senior Will Never Owe More Than The Value Of His Home.
This is a very important fact, a kind of a safe factor. The system takes care that the other assets of the borrower will never be used... This also means, that if the borrower has no other assets, he can still get the reverse mortgage loan. And the borrower can never owe more than the value of the equity of his home.
In many cases these loans are not the best options. This is the reason, for instance, why it is very important to go and meet the counselor. He is an expert and can tell, what is a healthy alternative for your special needs.
What Is A Reverse Mortgage And How Does It Work?
There are a few clever ways that a reverse mortgage works. These loans are different from regular loans and may have some advantages associated with them. What is a reverse mortgage may be a question that a homeowner has. Finding out exactly how these types of loans work and how they could help someone, may provide the information that is needed. When applying for this type of mortgage, customers may have to provide certain information and follow a set of rules in order to qualify.
The age requirement of the borrow may have to be over a certain amount. This age is crucial in order to get approved for the process. The age and the amount owning on the home will be factors in the approval process. The home will need to be paid off in full or have a low amount owing on it in order to meet the approval process.
With a typical loan or second mortgage, the lender will take a look at the debt ratio of the buyer. They will factor in the income and the debt and then use that against the home. They will also charge monthly fees to help pay for the second mortgage. A reverse system works in a different way.
When someone signs up with a reverse process, they do not have to make any monthly payments. The only time that payments are made, is when the home is sold or the owner of the house passes away. In the event of a death or a sale of the unit, the money that is owed to the lender plus interest and fees are collected at the time. If the house is going to a family member in an inheritance, whatever funds are left over from the reverse mortgage would then be given out to family members.
The unit that is being placed in the reverse process, has to be a single family house that is being occupied by the owner. The person who owns the house may also have to live in for a certain amount of time during the year. That means if a person were to head into a nursing home, they could loose the qualifications for the loan.
During the process of the loan, the customer may have some rules to follow. They may have to keep the property up to date and ensure that all repairs are made as needed. The house should not be run down in any way and remain up to its full potential. Taxes need to be paid and the unit has to be occupied by the owner and the principal loan person.
During the time that the home is available and the owner is alive and well, there is no money that needs to be paid back. That can help someone free up some cash to help pay for things, without having to worry about having to pay it back in monthly bills.
What is a reverse mortgage could be a question that many people may be wondering about. These reverse loans could be paid out using a few different systems. They could be given out as a lump sum or paid out in monthly installments. The extra money can help a senior pay for some of the things that they would like while they are well and living in a paid off house.
The age requirement of the borrow may have to be over a certain amount. This age is crucial in order to get approved for the process. The age and the amount owning on the home will be factors in the approval process. The home will need to be paid off in full or have a low amount owing on it in order to meet the approval process.
With a typical loan or second mortgage, the lender will take a look at the debt ratio of the buyer. They will factor in the income and the debt and then use that against the home. They will also charge monthly fees to help pay for the second mortgage. A reverse system works in a different way.
When someone signs up with a reverse process, they do not have to make any monthly payments. The only time that payments are made, is when the home is sold or the owner of the house passes away. In the event of a death or a sale of the unit, the money that is owed to the lender plus interest and fees are collected at the time. If the house is going to a family member in an inheritance, whatever funds are left over from the reverse mortgage would then be given out to family members.
The unit that is being placed in the reverse process, has to be a single family house that is being occupied by the owner. The person who owns the house may also have to live in for a certain amount of time during the year. That means if a person were to head into a nursing home, they could loose the qualifications for the loan.
During the process of the loan, the customer may have some rules to follow. They may have to keep the property up to date and ensure that all repairs are made as needed. The house should not be run down in any way and remain up to its full potential. Taxes need to be paid and the unit has to be occupied by the owner and the principal loan person.
During the time that the home is available and the owner is alive and well, there is no money that needs to be paid back. That can help someone free up some cash to help pay for things, without having to worry about having to pay it back in monthly bills.
What is a reverse mortgage could be a question that many people may be wondering about. These reverse loans could be paid out using a few different systems. They could be given out as a lump sum or paid out in monthly installments. The extra money can help a senior pay for some of the things that they would like while they are well and living in a paid off house.
Reverse Mortgage News For Senior Citizen Home Owners
It can often be quite difficult for many senior citizens who are living on fixed incomes to be able to meet their monthly bills. In addition, due to their age, it can be even more difficult to get a loan to help with expenses, because lenders are worried that seniors have failing health and may not be able to repay loans. Well, a loan has been created with senior citizens in mind, and only senior citizens. This loan is called a reverse mortgage, and it can be a lifesaver for many people who feel like they are never going to be able to enjoy their retirement because they do not have enough money to do so.
Changes in Reverse Mortgage Rules
There are all kinds of new things going on in the world of reverse mortgages. On December 1, 2009, the FHA raised the mortgage limit on a reverse mortgage to $625,500. This is money that you will never have to pay back as long as you are living in your home, which will be a great help to you, whether you are trying to pay bills, or want to travel and enjoy your retirement.
2009 was a big year for the reverse mortgage industry. An announcement was made in April about a certified Reverse Mortgage Calculator professional-loan originator destination, which is going to protect home owners more than they already are. More and more is being done every day to make reverse mortgages a viable option for any senior citizen who owns their own home and wants to have some additional income to live on.
Start Living Today
If you are senior citizen who owns their own home, you need to look into getting a reverse mortgage. Now is the time of your life that you have the freedom to do whatever you want, but you won't be able to do much if you do not have the financial freedom as well. Having a reverse mortgage will give you the financial freedom you need to enjoy life, and your retirement, to the fullest. Depending on the age and condition of your home, the amount of money you can receive from a reverse mortgage will vary. And, there are some properties that do not qualify for reverse mortgage funding. You can ask your mortgage officer about this, and find out if your home is eligible for a reverse mortgage.
Once you have received your loan, you are free to do pretty much whatever you want with the money. Of course, if you have a mortgage on the house already, you will have to pay this off first with the funds from the Reverse Mortgage Guide, and then you can have the rest for yourself. If you do not have a mortgage, the money is all yours and you can choose to have it all at once, or to receive it in regular payments.
Getting a reverse mortgage means getting financial freedom for yourself for your retirement years. This way, you will not have to worry about not having enough money to meet your monthly bills, and, you may even have some extra money to do the things you have always wanted to.
Changes in Reverse Mortgage Rules
There are all kinds of new things going on in the world of reverse mortgages. On December 1, 2009, the FHA raised the mortgage limit on a reverse mortgage to $625,500. This is money that you will never have to pay back as long as you are living in your home, which will be a great help to you, whether you are trying to pay bills, or want to travel and enjoy your retirement.
2009 was a big year for the reverse mortgage industry. An announcement was made in April about a certified Reverse Mortgage Calculator professional-loan originator destination, which is going to protect home owners more than they already are. More and more is being done every day to make reverse mortgages a viable option for any senior citizen who owns their own home and wants to have some additional income to live on.
Start Living Today
If you are senior citizen who owns their own home, you need to look into getting a reverse mortgage. Now is the time of your life that you have the freedom to do whatever you want, but you won't be able to do much if you do not have the financial freedom as well. Having a reverse mortgage will give you the financial freedom you need to enjoy life, and your retirement, to the fullest. Depending on the age and condition of your home, the amount of money you can receive from a reverse mortgage will vary. And, there are some properties that do not qualify for reverse mortgage funding. You can ask your mortgage officer about this, and find out if your home is eligible for a reverse mortgage.
Once you have received your loan, you are free to do pretty much whatever you want with the money. Of course, if you have a mortgage on the house already, you will have to pay this off first with the funds from the Reverse Mortgage Guide, and then you can have the rest for yourself. If you do not have a mortgage, the money is all yours and you can choose to have it all at once, or to receive it in regular payments.
Getting a reverse mortgage means getting financial freedom for yourself for your retirement years. This way, you will not have to worry about not having enough money to meet your monthly bills, and, you may even have some extra money to do the things you have always wanted to.
Florida Mortgage Rates
Mortgage rates in any market typically vary weekly or even daily. For the month of October 2005, interest rates for a 30-year fixed rate mortgage averaged slightly below six percent, which is comparable to the national average for the same period. Average interest rates for a one-year adjustable rate mortgage were slightly below four percent.
There are several factors that may affect your mortgage rate. In general, the more you borrow and the longer the term, the higher the rate. If you have a good credit history, a monthly income greatly in excess of your expected monthly payment, and are able to make a larger down payment, these factors can all drive the rate on your mortgage down. Rates on adjustable rate mortgages increase or decrease as interest rates increase or decrease, respectively. Your mortgage broker's points can also affect your rate. Points are basically broker's fees, with one point being equivalent to one percentage point of the total value of the loan. If a broker is paid more points upfront, in general, you will pay less interest for the life of the loan.
It is a good idea to clarify exactly how brokerage fees are structured. Closing costs are paid by the lender and built into the mortgage in the form of higher interest rates. You should find out what rate reductions may apply if you pay some or all of the closing costs upfront.
Trends in the yield of the 10-year Treasury note are usually a good predictor for rates of 30-year fixed rate mortgages, because most 30-year fixed rate mortgages end up being paid off or refinanced in about 10 years and are therefore somewhat similar to the 10-year note.
Florida Mortgages provides detailed information about Florida mortgages, Florida interest only mortgages, Florida mortgage brokers and more. Florida Mortgages is affiliated with Florida Refinance Mortgage Loans.
There are several factors that may affect your mortgage rate. In general, the more you borrow and the longer the term, the higher the rate. If you have a good credit history, a monthly income greatly in excess of your expected monthly payment, and are able to make a larger down payment, these factors can all drive the rate on your mortgage down. Rates on adjustable rate mortgages increase or decrease as interest rates increase or decrease, respectively. Your mortgage broker's points can also affect your rate. Points are basically broker's fees, with one point being equivalent to one percentage point of the total value of the loan. If a broker is paid more points upfront, in general, you will pay less interest for the life of the loan.
It is a good idea to clarify exactly how brokerage fees are structured. Closing costs are paid by the lender and built into the mortgage in the form of higher interest rates. You should find out what rate reductions may apply if you pay some or all of the closing costs upfront.
Trends in the yield of the 10-year Treasury note are usually a good predictor for rates of 30-year fixed rate mortgages, because most 30-year fixed rate mortgages end up being paid off or refinanced in about 10 years and are therefore somewhat similar to the 10-year note.
Florida Mortgages provides detailed information about Florida mortgages, Florida interest only mortgages, Florida mortgage brokers and more. Florida Mortgages is affiliated with Florida Refinance Mortgage Loans.
An Independent Mortgage Brokers Guide to Mortgages
With all these options available the good news is that you can find the correct mortgage for you. However this improved choice can seem bewildering and you may miss out on the best option for you through confusion, lack of time or simply having too many choices.In this competitive market it has never been more important to get clear, concise and simple independent advice to help you make the right choice.This guide is designed to help explain some of the options available to you and to let you know how a mortgage broker can make sure that one of the most important choices of your life is the correct one for you.
The Mortgage ProcessWhat is a mortgage?
A mortgage is made up of two parts:The Capital -
This is the amount of money that is borrowed from the lender to purchase the property.The Interest -
This is the interest that the lender charges on the capital until it is repaid at the end of the mortgage term.
Types of MortgageRepayment mortgageEach month your payment to the lender repays some capital and some of the interest. As long as you maintain your payments you can be certain that your mortgage will be repaid at the end of the term.Advantages
As long as the monthly payments are maintained the mortgage will be repaid at the end of the term - no need to worry about investment returns
Ideal if you wish to limit the risk linked to your mortgage
Simple to understand with payments to one providerDisadvantages
No possibility of additional investment returns
If you move house frequently it is difficult to build up equity in the property in the early years, as early payments are mainly interest
Limited possibility of repaying the loan early without increasing monthly payments
Interest only mortgageEach month the payment to the lender repays the interest on the loan. In this way the amount that is owed to the lender remains the same throughout the mortgage term. At the end of the mortgage term the lender will require the original amount of the loan to be repaid. A separate savings vehicle is used to build up enough money to repay the loan.Commonly used savings vehicles are:
Endowments (With profits)
PEPs (Pre April 1999)
ISAs (Post April 1999)
PensionsAdvantages
Offers the potential for additional investment return at the end of the term or the ability to repay the loan early, subject to investment return
The savings vehicle is usually portable when you move house
Choice of a wide range of investments that can be tailored to meet individual needs
Easy to move the mortgage without disrupting the repayment planDisadvantages
The ability to repay the loan is dependent upon the investment performance of the savings vehicle
You are responsible for the repayment of the loan at the end of the term
Two separate payments to track. One to the lender and another to the investment company
'Mix & Match'Many people moving house may already have an endowment plan from their previous loan. Their circumstances may have changed, however, so an additional endowment would not be appropriate for them. In these circumstances, it is usually possible to arrange for a lender to set up part of a loan on an interest only basis, and part on a repayment basis, thus ensuring that the benefits already accrued under the endowment are not lost. Not only that, but the life assurance already provided under the endowment is not lost.This method is becoming increasingly popular for people moving on to their next house.
Endowment Mortgages (With Profit)This type of investment combines a savings vehicle with the life protection needed to repay the loan on death during the term.Bonuses are usually, but not guaranteed to be added to the plan on a yearly basis and once paid these cannot be taken away.In this way the endowment aims to provide steady growth over the mortgage term and provide a lump sum, which should allow you to repay the loan although this cannot be guaranteed and is dependent on investment performance.Advantages
Guarantees to repay the loan in the event of death during the term
Portable and can be moved from mortgage to mortgage
Once bonuses are added they cannot be taken away
Potential for additional returns
Potential to repay the mortgage early
Can combine savings plan with life and critical illness protection if requiredDisadvantages
If surrendered early the return may be less than the premiums paid
No flexibility in premium payments
Term should be for at least 15 years
No guarantee that the mortgage will be repaid. The return is based wholly on the investment performance of the chosen provider
Must have life cover built in whether required or not
A Market Value Reduction (MVR) could apply to your endowment (if with profits) in adverse market conditionsA Market Value Reduction is a reduction applied to unitised with-profits funds where the value of the underlying assets is low. The Market Value Reduction, if any, is applied only when the plan is fully or partially surrendered (for example, on early retirement or transfer to another plan) or units switched into another fund.
ISA MortgageAn ISA (Individual Saving Account) is a very flexible way of saving to repay your mortgage. They do not have a set investment term and contributions may be varied (usually subject to maximum and minimum limits). You can pay on a regular monthly basis as well as making lump sum payments into the plan as long as you remain within the maximum annual limit.They offer a wide range of investment choices and also have several tax advantages.Additional protection such as Life or Critical Illness cover is usually purchased separately.Advantages
Tax efficient savings
No specific term
Potential to repay the loan early
Potential for additional investment return
Flexible premium payments
Portable - can be moved with your mortgageDisadvantages
Separate protection plan(s) required
Return is reliant on investment performance
No guarantee of return
Can only be taken in single name
Pension MortgageThis aims to take advantage of the tax free cash that is available from a personal pension plan. As this involves pension planning as well as mortgage planning it can be a very complicated area to consider.As with all the other options highlighted, there are advantages and disadvantages, however due to the complex nature of Pension Mortgages they should be dealt with on an individual basis and independent advice should be sought.
Hanson Wealth Management are a UK based Independent Financial Adviser. Hanson are the only Mortgage Brokers endorsed by the Police Federation of England and Wales to provide Police Mortgage Quotes
The Mortgage ProcessWhat is a mortgage?
A mortgage is made up of two parts:The Capital -
This is the amount of money that is borrowed from the lender to purchase the property.The Interest -
This is the interest that the lender charges on the capital until it is repaid at the end of the mortgage term.
Types of MortgageRepayment mortgageEach month your payment to the lender repays some capital and some of the interest. As long as you maintain your payments you can be certain that your mortgage will be repaid at the end of the term.Advantages
As long as the monthly payments are maintained the mortgage will be repaid at the end of the term - no need to worry about investment returns
Ideal if you wish to limit the risk linked to your mortgage
Simple to understand with payments to one providerDisadvantages
No possibility of additional investment returns
If you move house frequently it is difficult to build up equity in the property in the early years, as early payments are mainly interest
Limited possibility of repaying the loan early without increasing monthly payments
Interest only mortgageEach month the payment to the lender repays the interest on the loan. In this way the amount that is owed to the lender remains the same throughout the mortgage term. At the end of the mortgage term the lender will require the original amount of the loan to be repaid. A separate savings vehicle is used to build up enough money to repay the loan.Commonly used savings vehicles are:
Endowments (With profits)
PEPs (Pre April 1999)
ISAs (Post April 1999)
PensionsAdvantages
Offers the potential for additional investment return at the end of the term or the ability to repay the loan early, subject to investment return
The savings vehicle is usually portable when you move house
Choice of a wide range of investments that can be tailored to meet individual needs
Easy to move the mortgage without disrupting the repayment planDisadvantages
The ability to repay the loan is dependent upon the investment performance of the savings vehicle
You are responsible for the repayment of the loan at the end of the term
Two separate payments to track. One to the lender and another to the investment company
'Mix & Match'Many people moving house may already have an endowment plan from their previous loan. Their circumstances may have changed, however, so an additional endowment would not be appropriate for them. In these circumstances, it is usually possible to arrange for a lender to set up part of a loan on an interest only basis, and part on a repayment basis, thus ensuring that the benefits already accrued under the endowment are not lost. Not only that, but the life assurance already provided under the endowment is not lost.This method is becoming increasingly popular for people moving on to their next house.
Endowment Mortgages (With Profit)This type of investment combines a savings vehicle with the life protection needed to repay the loan on death during the term.Bonuses are usually, but not guaranteed to be added to the plan on a yearly basis and once paid these cannot be taken away.In this way the endowment aims to provide steady growth over the mortgage term and provide a lump sum, which should allow you to repay the loan although this cannot be guaranteed and is dependent on investment performance.Advantages
Guarantees to repay the loan in the event of death during the term
Portable and can be moved from mortgage to mortgage
Once bonuses are added they cannot be taken away
Potential for additional returns
Potential to repay the mortgage early
Can combine savings plan with life and critical illness protection if requiredDisadvantages
If surrendered early the return may be less than the premiums paid
No flexibility in premium payments
Term should be for at least 15 years
No guarantee that the mortgage will be repaid. The return is based wholly on the investment performance of the chosen provider
Must have life cover built in whether required or not
A Market Value Reduction (MVR) could apply to your endowment (if with profits) in adverse market conditionsA Market Value Reduction is a reduction applied to unitised with-profits funds where the value of the underlying assets is low. The Market Value Reduction, if any, is applied only when the plan is fully or partially surrendered (for example, on early retirement or transfer to another plan) or units switched into another fund.
ISA MortgageAn ISA (Individual Saving Account) is a very flexible way of saving to repay your mortgage. They do not have a set investment term and contributions may be varied (usually subject to maximum and minimum limits). You can pay on a regular monthly basis as well as making lump sum payments into the plan as long as you remain within the maximum annual limit.They offer a wide range of investment choices and also have several tax advantages.Additional protection such as Life or Critical Illness cover is usually purchased separately.Advantages
Tax efficient savings
No specific term
Potential to repay the loan early
Potential for additional investment return
Flexible premium payments
Portable - can be moved with your mortgageDisadvantages
Separate protection plan(s) required
Return is reliant on investment performance
No guarantee of return
Can only be taken in single name
Pension MortgageThis aims to take advantage of the tax free cash that is available from a personal pension plan. As this involves pension planning as well as mortgage planning it can be a very complicated area to consider.As with all the other options highlighted, there are advantages and disadvantages, however due to the complex nature of Pension Mortgages they should be dealt with on an individual basis and independent advice should be sought.
Hanson Wealth Management are a UK based Independent Financial Adviser. Hanson are the only Mortgage Brokers endorsed by the Police Federation of England and Wales to provide Police Mortgage Quotes