Since the early of 1960s, reverse mortgage has been around of the world although the financial loan is dominated by insurance. In 1988, reverse mortgage gets it law in the American Congress, and in 2000 the congress was approved with an absolute limit of the origination fees and refinancing reforms. It is likely that the legislator realize how people in retirement live in a luxurious house but having low income in the old days. The general customers of reverse mortgage  are those active people who want to spend the whole live in the house, and they need more cash to live their life as well as to give bit renovation to the house. as the need of real estate and health care increase, then the mortgage reverse is also skyrocketed since 1990.

It is true that the interest of reverse mortgage has been doubled in 2002, and some believe that many people joining this mortgage reverse because they want to make it as ATM machine. Some borrowers might think that you are only allowed to use the money for medical or housing costs. However, everything depends on the source of the loan anyway. According to FHA, You are allowed to spend the money for any purpose, so there is no limitation of what kind of matters you can deal with it. Therefore, it is better to reconsider if you want to invest your cash on risky investment that later when the stock goes lower you will lose your cash as well as your home equity. In addition, if you want to gain more interest in bank account by saving all of the money there, you have to think twice. Of course, you don’t want to lose social cesurity and medical benefits, therefore, it is better to not invest all of them in bank because it will impact the public programs like medicaid.

In addition, you have to know that reverse mortgage is not for everyone. You have to understand some terms related to the program is you don’t want to be trapped with risky condition. Closing costs in mortgage is sometimes higher rather than your equity or even any other traditional mortgage. In this mortgage, home equity is in line with the credit. Therefore, if you are planning to sell the house in the next few years, it is better to not join the reverse mortgage because it will just blow up your outcome. Furthermore, you have to know that reverse mortgage is also unwise to leave the house for your children because the the sale of the house is the loan that you have to pay. Moreover, a reverse mortgage is the one which is hard to understand compared to traditional mortgage. Therefore, anybody deserving to join the mortgage should ask for third party companion to consult the prior. There are so many terms that are difficult to understand, and only professional will give the best explanation.

Then, who are qualified for reverse mortgage? Yeah, people in the age of 62 or more are the ones qualified for the reverse mortgage, and they don’t  have any income in the retirement. There is also no credit check or medical exam to in line with the regulation. In addition, the amount of the loan depends on the age of the borrower, appraisal of the house and also current interest rate and current lending limit area. Therefore, older homeowners are allowed to have higher loan with lower interest rate if they are presumably get the loan shorter. Once dealing with refinancing, it means that you have to get a new loan, and if you still defence the original one, the new loan will go to pay the debt of the old one.

Related to the payment options, it varies from one lender to another one. One prefers to get the money in a lump sum while the others prefer to have it fixed monthly. There are tenure plan and term plan. Tenure plan is a payment option that lets the borrower to ask for money in fixed amount as long as the homeowner becomes the principle of the residence. A term plan provides fixed payment for a period of selected months. Opening a line of credit will be easier to combine with tenure or term plan.

Private Mortgage Insurance (PMI) is a kind of mortgage insurance which is used altogether with conventional loans. Similar to other mortgage insurances, PMI gives the protection to lender, not the client, when the client stops doing payment of client’s loan. PMI itself is organized by the lender and it is provided by the private insurance companies. People commonly require PMI when they have conventional loan and do down payment less than twenty percent of total home price. PMI is also required if the equity is less than twenty percent of the total of home value. You can avoid PMI if you save up your money for paying down a 20 percent down payment. If you can’t, the lender will ask you to secure PMI prior to sign off your loan. The insurance company’s goal is to give best protection to mortgage company when you default the note.

PMI sounds a great choice especially for the new homeowners. They can buy a house without requiring to save up the cash for paying. Yes, sometimes this is the only way and even the best way for the new home buyers. Yet, there are some reasons why the new home buyers need to avoid such kind of insurance. To know more the reasons, just read the following information.

  • Cost

Private Mortgage Insurance commonly has cost of rate at 0,5-1 percent of the total amount of loan. A $100.000 loan means a homeowner would be paying $1,000 per year ($100,000 x 1%) or $83,33 per month ($100,000/12). When the house value changes, the homeowner might be paying more than $83,33 per month (depending on actual house value).

  • Not be deductible

Private Mortgage Insurance is included as a deductible tax, but only if a married tax payer has earned less than $110,000 for a year. For a married couple that fills it separately, the threshold is about $55,000. There is a rumor that this threshold could be raised for next years, but there is no warranty that it will happen. Many homeowners prefer paying down larger payment to paying down the threshold since they will feel peace on their mind that the loan’s interest is deductible.

  • The heirs will be nothing

Most PMI users believe that their kids and spouse will receive a sort of financial compensation when the users die. This is not true. The institution or company is taking the benefits of such policy. The compensation won’t pay directly to the heirs. If the heirs want to be protected and provided some of money for supporting their living expenses after your death, it‘s needed another or separated insurance policy. Don’t have a thought that PMI will be ready to help the clients’ heirs, but only the mortgage lender.

  • Hard to be canceled

When the client has the equity up to 20%, she or he doesn’t need to pay PMI anymore. Yet, getting rid of the monthly burden is not simply easy. Most lenders need their clients to draft the letter containing of PMI cancelation. And this takes several months to process it depending on the lenders.

  • Payment goes on and always on

One more issue about the lender and PMI is some lenders ask their clients to maintain PMI contract for a certain period. Even if the clients have met 20% threshold, they might still be obligated to paying for their mortgage insurance. So, it’s crucial to re-read the printed PMI contract in more details before being signed.

  • Running money away

The clients who haven’t met 20% of purchase price yet, they have to pay their mortgage insurance until their total equity of house at least 20%. This can take some years and during those years, they keep paying the mortgage insurance. This is literally running amounts of money away for years. Then, how to avoid Private Mortgage Insurance (PMI)? In particular situation, a PMI can be avoided by using piggy-back mortgage. The following illustration may make you understand more about this case. You want to purchase $200,000 for a new house, for instance, but your cash is only 10% of total of purchase-price (not enough to avoid Private Mortgage Insurance). By using an 80/10/10 agreement, you now can take the loan out with a total 80% of the house value. This second loan is then called as a piggy-back loan. With splitting up loans, you may have the capability of deducting the interest for both loans and avoiding PMI as well.