Getting A Blended Mortgage
A final way to access your equity or lower your interest rates without the prepayment penalty is to get a blended mortgage. A blended mortgage isnt as common as the previous two methods weve talked about, but its a really useful way to circumvent some of the fees for breaking your mortgage early. With a blended mortgage, you are essentially blending together one mortgage rate with another. When we talk about blended mortgages, were also talking about two specific types: blend and extend, and blend to term. Heres a breakdown of both:
- Blend and extend
A blend and extend mortgage involves blending your current mortgage with another, and extending the length of your term. For example, If your current mortgage rate is fixed at 4% and you have two years left of a five year term, but you want to access the current market rate of 2.5%. By blending and extending your mortgage, you could access a rate around the 3.29% mark, without paying a prepayment penalty for breaking your term. You would also extend your term by three years, resetting your new mortgage to a five year term. If you also wanted to access some of the equity in your property, your new rate would reflect that by being slightly higher, since your lender is giving you even more money.
- Blend to term
A Valuable Source Of Retirement Income
The combination of receiving payments from home equity and not owing a monthly mortgage payment can be a game-changer for your clients in retirement. Since they’ll only need to pay taxes and insurance, plus any costs related to maintenance and upkeep, they can have more cash on hand for other expenses.
Even if your client is not retired yet, a reverse mortgage can significantly boost their retirement finances. Money received from a reverse mortgage does not count as taxable income, and they may be able to hold off on taking withdrawals from their investment accounts which do count as taxable income by relying on reverse funds instead.
Of course, everyones situation is unique, and you should talk with your clients to determine whether a reverse mortgage fits into their retirement financial plans.
Things To Remember About Reverse Mortgage Rates
Reverse mortgages always cost more than conventional mortgages because the lenders funding costs are higher.
The reason for that is two-fold:
At the moment, there are only two mainstream reverse mortgage lenders in Canada. This duopoly doesnt result in much competition, meaning rates are arguably higher than they otherwise might be.
Having said that, both Equitable Bank and HomeEquity Bank have become more aggressive in their reverse mortgage pricing since 2020. That was a year reverse mortgage rate sank to historic lows.
Despite reverse mortgage rates being materially higher versus standard mortgage rates, when cash is key and leaving your home is not an option, and you dont qualify elsewhere, the rate on a reverse mortgage can seem like a bargain compared to the alternatives.
Reverse mortgages are often a “plan C” for those approaching retirement with little or no additional savings aside from their home equity.
2016 Census showed that 45% of Ontario homeowners were already at or near retirement at that time, and that 88% of this demographic has less than $200K in savings, according to HomeEquity Bank. “Most of their wealth is in real estate and two-thirds earn only CPP and OAS.”
Here’s three other things to keep in mind about reverse mortgage rates:
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What Will My Interest Rate Be
Your interest rate depends on the culmination of a few factors:
- Whether you are planning on getting a HECM reverse mortgage or a HECM for Purchase
- Your age
- Any existing mortgage balance or liens
- Number of expected years in the house
- Your life expectancy
- The disbursement option is chosen
Using this information, a reverse mortgage professional can help you figure out what your reverse mortgage interest rate will be. The best way to understand your rates would be to speak with your AAG reverse mortgage professional and get a customized quote based on your individual situation. Call us today at 1-866-948-0003 to learn more from your friendly reverse mortgage professional.
Disclaimer notice: Interest rates mentioned are for illustrative purposes only and are not an offer to lend. Interest rates and amortization, mortgage insurance premiums , origination fees, lender margins, payment options and closing costs are subject to change and may vary. Amortization tables and APR calculations will be provided by your lender in the loan application package. A good faith estimate of closing costs, TALC disclosure and other disclosures will also be provided on the loan application as required by the Truth in Lending Act and Regulation Z.
Most Affordable Markets For Homebuyers
According to 2020 data fromZillow Research, record low mortgage rates have helped to boost affordability for potential homeowners. The table below shows the top 10 most affordable markets to live in for December 2020 and is based on a typical home value of no more than $300,000 . The market and share of income spent on a mortgage may fluctuate based on the current mortgage rate, the typical local homeowner’s income and the typical local home value.
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Reverse Mortgage Interest Calculation
Reverse mortgage interest is calculated on the daily balance,compounded and debited monthly to your loan account.At the end of the term of your loan,when you move permanently from your home,the total interest charged,together with the principal will be payable.
Take note that the rate is subject to change,because it is a variable interest rate.If there are changes to your interest rate,we will publish these on our website and in a newspaperwith nationwide circulation. We will also detailthe new interest rate on your next loan account statement.
*Comparison rate is based on a loanof $150,000 over a term of 25 years.^ Comparison rate is based on a loanof $150,000 over a term of 5 years.Please note the comparison rate only appliesto the examples given. Different loan amountsand terms will result in different comparison rates.Costs such as redraw fees and costs savings,such as fee waivers, are not included in the comparison ratebut may influence the cost of the loan.
Use ASIC’s MoneySmart Reverse Mortgage Calculator to providean illustration of the impactof your Heartland Reverse Mortgage on the equity in your home.
The reverse mortgage calculator helps you work out:
- how much your debt will increase over timeand what this means for the equity in your home
- how changes in interest ratesand house prices could affect the equity in your home
Loan criteria, terms, conditions, fees and charges apply.
Important Notice Retirement Finance
Where Are Mortgage Rates Heading This Year
Mortgage rates sank through 2020. Millions of homeowners responded to low mortgage rates by refinancing existing loans and taking out new ones. Many people bought homes they may not have been able to afford if rates were higher. In January 2021, rates briefly dropped to the lowest levels on record, but trended slightly higher through the rest of the year.
Looking ahead, experts believe interest rates will rise more in 2022, but also modestly. Factors that could influence rates include continued economic improvement and more gains in the labor market. The Federal Reserve has also begun tapering its purchase of mortgage-backed securities and said it anticipates raising the federal funds rate three times in 2022 to combat rising inflation beginning as soon as March.
While mortgage rates are likely to rise, experts say the increase wont happen overnight and it wont be a dramatic jump. Rates should stay near historically low levels through the first half of the year, rising slightly later in the year. Even with rising rates, it will still be a favorable time to finance a new home or refinance a mortgage.
Factors that influence mortgage rates include:
Increase In 2022 Lending Limits Or Home Values
If your home value increases considerably since you closed your original loan, there may be an opportunity to refinance to obtain more money. Small increases will not typically bring a large enough net gain to borrowers to make a refinance worthwhile or viable as we will discuss later in refinance qualifications.
Homeowners who have homes that have values higher than the HUD limit at the time their loans were closed will usually benefit from a refinance at the new higher limits, but not always.
Prior to 2008, the HUD limit varied by county and the highest limit was $362,790. In 2008, the limit became a national limit, set at $417,000. In 2009, the limit was raised to $625,500 where it stayed for several years before it began to increase in 2015 as housing prices rose.
HUD HECM borrowers with higher valued homes who closed their loans before 2022s current limit of $970,800 have a good chance to receive more cash benefits.
Fees And Legal Requirements
Fees do apply to your Heartland Reverse Mortgage,including when you set up your loan or set up further top-up loans.For full information about our fees and when they are charged,see our fee schedule.
Independent legal and financial advice
To protect your own interests, you will be required to seek advice from your own legal adviser, who will provide you with the necessary independent legal advice you need before making any decisions. They will advise you about their fees, and you will be responsible for any costs that arise through your engagement with them in regards to your reverse mortgage application.
In order for us to keep our promises to you, you also have a number of legal obligationsto us. This includes continuing to look after your home, making necessary repairs,and adequately protecting it from damage. You also must continue to pay your rates,and insure your property.
To help you monitor your loan, we send you a statement every six months,with details of your loan over the previous period, including interest.
Code of Banking Practice
The Code of Banking Practice sets out standards for good banking practice. We adhere to the Code and see it as a minimum standard to maintain good relationships and communications with our customers.
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How A Reverse Mortgage Works
With a reverse mortgage, instead of the homeowner making payments to the lender, the lender makes payments to the homeowner. The homeowner gets to choose how to receive these payments and only pays interest on the proceeds received. The interest is rolled into the loan balance so that the homeowner doesnt pay anything up front. The homeowner also keeps the title to the home. Over the loans life, the homeowners debt increases and home equity decreases.
As with a forward mortgage, the home is the collateral for a reverse mortgage. When the homeowner moves or dies, the proceeds from the homes sale go to the lender to repay the reverse mortgages principal, interest, mortgage insurance, and fees. Any sale proceeds beyond what was borrowed go to the homeowner or the homeowners estate . In some cases, the heirs may choose to pay off the mortgage so that they can keep the home.
Reverse mortgage proceeds are not taxable. While they might feel like income to the homeowner, the Internal Revenue Service considers the money to be a loan advance.
No Monthly Mortgage Payments
Unlike a regular mortgage, there are no regular mortgage payments of principal and interest. Reverse mortgage agreements provide that no repayments are due until the homeowner dies, or the house is sold or abandoned. Unless you fall behind on taxes or allow the house to slip into disrepair, the lender cant foreclose on the property. You can continue living in the house even if you live many years beyond expectations and the size of the debt surpasses the value of the house itself.
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How To Avoid Reverse Mortgage Scams
As you shop for a reverse mortgage and consider your options, be on the lookout for two of the most common reverse mortgage scams:
- Contractor loans Some contractors will try to convince you to get a reverse mortgage when touting home improvement services.
- Veteran loans The U.S. Department of Veterans Affairs doesnt provide reverse mortgages, but you may see ads promising special deals for veterans, such as a fee-free reverse mortgage to attract borrowers.
The best way to avoid a reverse mortgage scam is to be aware and vigilant. If an individual or company is pressuring you to sign a contract, for example, its likely a red flag.
How Can I Get The Best Interest Rate On A Reverse Mortgage
To get the best reverse mortgage interest rate for your client, shop around. Getting a few quotes will give you a sense of what a reasonable rate looks like based on your client’s circumstances, and if you get an outlier either very high or low you can ask the lender more detailed questions about the rate.
Some interest rate factors are beyond your client’s control, such as their age, location, the appraised value of the home, and current market rates.
So, its important to control the factors you can influence, including shopping around and making an informed decision about how to structure the loan proceeds.
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Next: See How Much You Can Borrow
You’ve estimated your affordability, now get pre-qualified by a lender to find out just how much you can borrow.
What will your new home cost? Estimate your monthly mortgage payment with our easy-to-use mortgage calculator.
- Award Ribbon
Use our VA home loan calculator to estimate payments for a VA loan for qualifying veterans, active military, and military families.
- Dollar Sign
Your debt-to-income ratio helps determine if you would qualify for a mortgage. Use our DTI calculator to see if you’re in the right range.
- Pig Refinance calculator
Interested in refinancing your existing mortgage? Use our refinance calculator to see if refinancing makes sense for you.
Important Tips To Avoid Reverse Mortgage Scams
Take care to stay vigilant of any reverse mortgage scams with the following tips at hand
When seeking funding, you can also look for alternative financing options like loan against property. These secured advances come with high-value funding and attractive features at competitive rates. Bajaj Housing Finance Limited brings Loan Against Property of up to Rs.3.5 crore for individuals with the right eligibility.
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What Are Blended Mortgages
If youre in a situation where you want to access equity in your home or capitalize on lower interest rates, you might want to consider a blended mortgage. As an alternative to a HELOC or breaking your term early which comes with significant penalties a blended mortgage is a great way to lower your interest rate or free up some of the equity in your home, by combining your current mortgage rate with a new one. In this post, well take you through the context in which a blended mortgage could work as an alternative to other forms of refinancing, and help you understand the different kinds of blended mortgages.
- There are a number of options available if youre thinking of refinancing your home. These include blended mortgages, breaking your term early, or getting a HELOC
- Blended mortgages are a good alternative to breaking your mortgage early, since you wont have to pay a prepayment penalty with a blended mortgage
- With a blended mortgage, you can either blend it with a new rate for the remainder of your current term, or extend your term
Reverse Mortgage Refinance Eligibility
Both the HUD program and the private programs require you to have a significant equity position in your home to do a refinance of a reverse mortgage.
HUD generally requires borrowers to pass a 5-times benefit rule to qualify to refinance a reverse mortgage with a new reverse mortgage. This rule exists for both HUD and for proprietary or jumbo loans. However, some exceptions may be made.
The rule is explained below, and it protects borrowers from equity stripping, which are constant refinances that do not benefit the borrower but accrue fees. To meet the test, you must receive at least 10%of the new principal limit in additional reverse mortgage proceeds for the HUD HECM to HECM refinance.
This would mean that if your Principal Limit is $300,000, you would have to receive at least $30,000 in new proceeds from the refinance loan in addition to the new proceeds being at least 5 times the costs of the loan.
Preferably your interest rate or margin should be improved, but in a rising interest rate market, this is not necessary.
Exceptions may be made when the loan itself protects or significantly benefits the borrowers.
Such a case would be adding a non-borrowing spouse protection to your loan.
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How Does A Reverse Mortgage Work When You Die
Its important to have a plan to deal with your reverse mortgage loan after you die. Family members also need to understand their options for keeping the house, as well as their payment responsibilities. Repaying the loan can get complicated, depending on how much equity you have in your house and whether you want the house to stay in your family after your death.