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Saturday, January 3, 2009
Mortgage companies factor the amount of available funds, for a borrower to receive, based upon current interest rates, home value, and age of borrower. Older reverse mortgage borrowers receive more money their younger counterparts.
Supposing there is more than one person on the loan. The lender factors the youngest persons age as the determinant in the equation to find the loan amount.
If the mortgage amount ever exceeds value and the home is sold, either because the last surviving spouse dies or the from a voluntary sale, the lender automatically loses money. This being the case the mortgage company must be conservative by using the age of the younger spouse.
With that in mind the lender must give the younger borrowers a lower loan to value ratio than the older ones. The young ones will be in the home longer, and the lender must account for the power of compounding interest working against the security for their investment.
That being said borrowers may realize a dilemma if one spouse is quite a bit older than the other. If the couple needs a sizable sum of money out of the mortgage, the age of the younger borrower can dismantle this plan.
Are they dead in the water? Absolutely not. The younger spouse can sign a disclaimer deed, effectively making the older borrower the sole borrower, and they can get their money.
Fabuloso! The borrowers have their needed cash.
There are, however, ramifications to this maneuver. The biggest one centers around the little known fact that sometimes we, as mere mortals, occasionally die.
If the older spouse passes away first, the bank will eventually find out and will call the note due. From there the surviving spouse has about 12 months to pay the bank back.
Since reverse mortgages are generally used on a I need the money because I need the money basis, chances are the surviving spouse will need to sell the home at that point.
The important thing to think through is that many people have long emotional ties to their home. My suggestion is to be sure the financial obstacle you wish to overcome with a reverse mortgage, by disclaiming the spouse, is worth the emotional heartache of losing the home too.
Disclaiming the spouse should be done on a need basis and both spouses should understand and accept the future consequences.
Supposing there is more than one person on the loan. The lender factors the youngest persons age as the determinant in the equation to find the loan amount.
If the mortgage amount ever exceeds value and the home is sold, either because the last surviving spouse dies or the from a voluntary sale, the lender automatically loses money. This being the case the mortgage company must be conservative by using the age of the younger spouse.
With that in mind the lender must give the younger borrowers a lower loan to value ratio than the older ones. The young ones will be in the home longer, and the lender must account for the power of compounding interest working against the security for their investment.
That being said borrowers may realize a dilemma if one spouse is quite a bit older than the other. If the couple needs a sizable sum of money out of the mortgage, the age of the younger borrower can dismantle this plan.
Are they dead in the water? Absolutely not. The younger spouse can sign a disclaimer deed, effectively making the older borrower the sole borrower, and they can get their money.
Fabuloso! The borrowers have their needed cash.
There are, however, ramifications to this maneuver. The biggest one centers around the little known fact that sometimes we, as mere mortals, occasionally die.
If the older spouse passes away first, the bank will eventually find out and will call the note due. From there the surviving spouse has about 12 months to pay the bank back.
Since reverse mortgages are generally used on a I need the money because I need the money basis, chances are the surviving spouse will need to sell the home at that point.
The important thing to think through is that many people have long emotional ties to their home. My suggestion is to be sure the financial obstacle you wish to overcome with a reverse mortgage, by disclaiming the spouse, is worth the emotional heartache of losing the home too.
Disclaiming the spouse should be done on a need basis and both spouses should understand and accept the future consequences.
About the Author:
Don't even consider a HECM before acquiring a California reverse mortgage report here. Also, a very practical site for the California reverse mortgage questions and answers here.
posted by Credit Counseling at
5:23 AM
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