The Benefits of a Reverse Mortgage

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Reverse Mortgages are financial arrangements that allow you to live off of their equity in your house. While these are not recommended for people who have enough to live comfortably or who have little or no equity in their house, it can be hugely helpful to others. In a perfect world, everyone would be able to retire and live comfortably during their golden years. However, we see more and more seniors who end up having to work longer, or drastically reduce their standard of living. A retirement should be able to provide for you to live under the same standard of living you enjoyed during your working years. If you have a moderate amount of equity in your house, you can take advantage of it and live out your years in comfort with a reverse mortgage.

So what should you know about a reverse mortgage? Most reverse mortgages are obtained with refinancing ones home but one can obtain a reverse mortgage as a purchase-loan as well. A reverse mortgage has no monthly payments and can allow one to access cash out of the property. However, you will have to pay normal taxes, utilities, and other home maintenance bills. No monthly payments sound great but make no mistake, you’re still paying for it. A reverse mortgage can mean you are essentially handing over the property to the bank in exchange for not making a monthly mortgage payment.

A friend of mine’s mom used a reverse mortgage 15 years ago to access her equity to pull out $200k in cash with NO no monthly mortgage payment requirements for the rest of her life. Her property was paid off at that time. Today, that $200k mortgage and increased to $420k – due to negative amortization. The property is worth $695k. The loan balance will continue to increase and could eventually exceed the value of the property, depending on how long she lives. For her, a reverse mortgage was the right decision but again, this loan product is not for everyone. 

A common misconception is that the reserve mortgage lien holder owns the property and keeps any equity remaining. This is untrue.

No loan is good or bad. A loan is just a finance-tool. Make sure this tool is right for you. Always spend more time researching the negative aspects to any loan since the positives are most obvious. Please consult a tax advisor for further information and talk to friends and family. Make sure to do your homework before agreeing to any mortgage and especially a reverse mortgage.

 

Credit Reports are EXCLUDING Negative Information and Raising FICO Scores

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Updates to the types of information that the major credit reporting firms use in creating a credit score could soon improve the scores for millions of Americans. The three firms, Equifax, TransUnion, and Experian recently decided that they would no longer use certain negative reports in their credit scores. Specifically, Tax liens and Civil Judgments will be excluded from reports if certain information is unavailable to the firms. Here are 3 things you need to know about the new rules allowing credit reports to exclude negative information and boosting FICO scores, and how they might affect you.

 

  1. This will only apply if the information that the firm has about the tax lien or civil judgment is missing some information. If the report includes full name, address, date of birth, and SSN, then the information will stay. However, frequently reports are made without this information. It is projected that over 10 million people will see moderate improvements to their credit score, and over half a million could see substantial gains of 40 points or more.
  2. The boost could make a definite difference in loan approvals. A 40 point gain could easily mean the difference between approval and denial for a loan. And while this is great news for consumers with shaky credit, lenders might be wary. Those with tax liens and civil judgments against them have been estimated to be twice as likely as those without to default on loans.
  3. The new rule will go in effect July 1, so if you know that you have these on your record, check your credit after this time. If you see a substantial improvement, don’t sleep on it. Use your improved credit to increase your financial stability. That said, If you are a lender, you might need to remember the adjustments, and keep them in mind when assessing credit worthiness. You now have less information to work with.

The impact of this change will obviously not be seen until the rule is put into effect and credit scores begin to change, but there are some things that we should keep in mind. First, public information can still be used to determine if, for example, someone has a civil judgement against them. The change in rules will boost their credit score, but lenders could still look this information up. Second, this will hopefully decrease the number of people with incorrect information on their credit reports. Removing items this way shows that the CRAs are paying attention to a current problem:the number of complaints that they receive about incorrect credit report info.