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Reverse Mortgage - Balloon Mortgage & CEMA Mortgage
What is mean by Reverse Mortgage:
A Reverse Mortgage is a mortgage loan, usually secured by a residential property, that enables the borrower to access the unencumbered value of the property. The loans are typically promoted to older homeowners and typically do not require monthly mortgage payments.
Borrowers are still responsible for property taxes or homeowner's insurance. Reverse mortgages allow older people to immediately access the home equity they have built up in their homes, and defer payment of the loan until they die, sell, or move out of the home. Because there are no required mortgage payments on a reverse mortgage, the interest is added to the loan balance each month.
The rising loan balance can eventually grow to exceed the value of the home, particularly in times of declining home values or if the borrower continues to live in the home for many years. However, the borrower (or the borrower's estate) is generally not required to repay any additional loan balance in excess of the value of the home.
Who is eligible for a Reverse Mortgage?
In order to be eligible for a Reverse Mortgage, the applicant must be 62 years or older, own the property, and occupy it as their primary residence. In addition, they must maintain the home with needed repairs, property taxes and insurance. Also, the property does need to meet certain FHA property standards. Finally, the applicant must participate in a reverse mortgage counseling session.
What are the Advantages are there in a Reverse Mortgage?
The Borrowers not required to make any regular loan payments.
The Borrower may turn some of the value of their home into cash, without having to sell it
The Borrower doesn’t pay tax on the money they borrow
This money doesn’t affect the Old-Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits borrower may be getting
The Borrower still owns their house
The Borrower may have options as to when and how they receive the money
What are the Disadvantages are there in a Reverse Mortgage?
Interest rates are higher than most other types of mortgages
The equity borrower hold in their home may go down as borrower accumulates interest on their loan
Borrower Estate has to repay the loan and interest within a set period of time when the borrower dies
The time needed to settle an estate may be longer than the time allowed to repay a reverse mortgage
There may be less money in borrower estate to leave to their children or other beneficiaries
Costs associated with a reverse mortgage may be higher than a regular mortgage or other credit products
What is mean by balloon mortgage?
A balloon mortgage is a real estate loan that has an initial period of low or no monthly payments, at the end of which the borrower is required to pay off the full balance in a lump sum. The monthly payments, if any, may be interest only, and the interest rate offered is often relatively low.
Lump sum means a single payment made at a particular time, as opposed to a number of smaller payments or instalments.
What are the Advantages are there in a Balloon Mortgage?
Balloon mortgages should come with a lower interest rate than either fixed-rate or adjustable-rate mortgages, making them a cheaper loan for the right consumers.
Those consumers who plan to live in a home for only a short period of time, might do well to take out a balloon mortgage. Say they plan to move in three years. They can take out a five-year balloon mortgage at a lower interest rate and then sell their home long before that massive balloon payment becomes due.
This can also be an option for people who gets large bonuses, but a more moderate salary. A balloon loan would allow the monthly mortgage payments to fit into their budget, and then they could use the larger yearly lump sums toward the balloon payment.
What are the Disadvantages are there in a Balloon Mortgage?
A balloon mortgage has its risks for lenders as well. Because that final payment is such a big amount, the odds are greater that the borrower won’t be able to make it and that the lender will have to foreclose on the property. Also, because the monthly payments are lower, lenders don’t get as significant a cash stream from the loan.
What is mean by CEMA Mortgage?
CEMA stands for Consolidation, Extension and Modification Agreement.
A CEMA loan is an agreement between the existing Lender and the New Lender to combine two or more loans into a new, consolidated loan. This is commonly used by existing homeowners who wish to refinance their home or prospective buyers looking to save on mortgage taxes.
Mostly this document comes on New York State alone.
A CEMA, loan is an option available to New Yorkers that can drastically reduce the cost to refinance a mortgage. CEMA loans allow borrowers to pay mortgage recording taxes on only the difference between their current principal balance and their new loan amount.
Generally, if the homeowner is planning to refinance their existing first mortgage and has previously paid the New York State mortgage tax, CEMA will allow the homeowner to pay the calculated NYS mortgage tax only on the new money or additional amount above what was originally borrowed. Accordingly, rather than pay the state and local tax on the amount of the mortgage, with a CEMA loan, you’re only paying the tax on the difference between your mortgage amount and the previous loan amount.
No cancellation will be filed on the existing mortgage, and the homeowner's credit report will reflect the new CEMA mortgage and will report the existing mortgage as transferred.
Benefits of CEMA
CEMA loans help save money for those attempting to refinance their home because clients only have to pay taxes on the amount of the new loan that is above and beyond their current unpaid principal balance, otherwise known as “PUB,” such as closing costs or cash out.
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