 If you need or want a mortgage, then you can easily get a mortgage that is not the best one for you. Mortgages are often missold by sellers claiming to be experts. One day they all push Endowment mortgages, then Repayment mortgages or Low Start mortgages or Overpayment mortgages or Fixed Rate mortgages or Offset mortgages - and each type will also have different interest rates available.
For any one kind of mortgage, lower interest rates are best of course. But different kinds of mortgage may best suit different people, though they may not have the same interest rates. For some a mortgage is the only way they can afford to buy a property, but for some a mortgage is profitable cheap money costing maybe 5% net to free-up other money for investing at a higher return maybe 10% net. |
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These days, more and more attention is being paid to APRs when people are shopping around for loans. This is not surprising as the very reason the APR was introduced was provide a standard figure that customers could use to compare the prices of loans without getting our their calculators and doing the math themselves. However, there are many other potential charges when taking on credit and it would be a mistake to ignore these and put all your concentration the single APR figure.
One of the charges that can become the most significant is the early redemption charge or penalty. These are charges included in a loan agreement that will be levied on the customer if they wish to repay the loan early. The ability to repay a loan early is probably the most important flexibility issue with all credit as it means that you can take advantage of extra cash that comes your way to get out of the loan. Since interest is calculated based on how long is outstanding on the loan you the potential of saving literally thousands of pounds in interest charges.
Early redemption penalties can be included on any type of loan, with the exception of credit cards and overdrafts that always allow you to repay the balance as you wish. They are most important however, in the context of mortgages. Many people buy a home with the intention of staying there only for a short period of say a year or two. Many others, may find that circumstances force them to move sooner than they would have expected, for example if their family has grown or they move jobs. These possibilities should be planned for, particularly for young people and first time buyers, and they should consider early redemption penalties carefully before committing to a new mortgage.
Many mortgages will be without early redemption penalties and these will be a wise option for people who feel there is a possibility that they will want to repay their loan early. However, it is quite common with discount mortgages, which give you a lower rate of interest for a set introductory period, usually two years, for early redemption penalties to exist. A typical example would be a mortgage with an early redemption penalty of two per cent if redeemed in the first year, one per cent for the second year and zero thereafter. These may seem like fair charges and in general they are, but consider the circumstances where a couple take out a hundred thousand pound mortgage and then find they have to move house within one year. They will be subject to a two thousand pound early redemption penalty. This is surely something most people would wish to avoid. |
There are many different reverse mortgage options: single purpose reverse mortgages, federally insured reverse mortgages, and proprietary (private sector) reverse mortgages. Each option has different pros and cons that need to be considered when looking into taken out a reverse mortgage.
Single-Purpose Reverse Mortgages
A single purpose reverse mortgage is the lowest-cost type of reverse mortgages to obtain, but as the name indicates it can only be used for one specified purpose. They are typically offered by state or local government agencies. These loans a great for individuals who need cash for a specific purpose like paying property taxes or fixing up there homes. Here are descriptions for several different types of single purpose reverse mortgages:
Property tax deferral (PTD) mortgages are reverse mortgages that provide loan advances for paying property taxes.
Deferred payment loans (DPLs) are reverse mortgages providing lump sum disbursements for repairing or improving homes.
Federally Insured Reverse Mortgages
A federally insured reverse mortgage is the only reverse mortgage insured by the Federal Housing Administration (FHA). These reverse mortgage are one of the lowest-cost multipurpose reverse mortgages currently available. Overall they typically provide the largest total cash benefits of all the reverse mortgage options. The proceeds from a federally insured reverse mortgage can be used for any purpose. These loans are also known as Home Equity Conversion Mortgages (HECMs).
Proprietary Reverse Mortgages
A proprietary reverse mortgage is a mortgage product owned by a private company. These type of loans are more expensive then the other reverse mortgage types and should be approached with caution. Anyone looking into these type loans should get a comparison with a similiar HECM. One benefit of proprietary reverse mortgages are the higher home value limits. So, if you live in a home that is worth a lot more than the average home value in your county, a proprietary loan may give you greater loan advances than a Home Equity Conversion Mortgage (HECM).
As with any financial decision, you should get professional help to help you decide which option is best for your situation. Reverse mortgage counselors can help you evaluate each of your options and help you make an informed decision. |
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