Mortgage, Real Estate and Debt Information

As age catches up with seniors and their retirement gross nearer, seniors should start thinking about planning for the future. There is no doubt, some post retirement benefits will help seniors, but the amount of money can be inadequate for some seniors to meet their financial expenses for each month. Unless the senior is receiving a sizable amount of money for their retirement benefits, it is unlikely they have the funds for a comfortable retirement that would enable them to travel and enjoy their silver years. All these financial requirements can easily be taken care of my means of a reverse mortgage.

Many people think of ways in which they can add substantial amounts of money to their retirement so they can live the life they have always dreamed about. Most seniors have seen ads of elderly couples traveling to exotic foreign destinations beamed across the TV screen and they too want to join in the fun and enjoy life. There is a way to take those trips and have extra money without many hassles; the parties involved just need to be at least 62 years of age to apply for a reverse mortgage that can provide the senior with financial liberty by using their home equity.

If you are a senior citizen and are above 62 years of age and have a large amount of equity in your home, a reverse mortgage can assists you in your post retirement dreams. After you receive the loan from the lender, you will not have to pay back the loan as long as you live in your home. However, if you sell your home, you will have to repay the loan. The money you receive from the loan is tax free and you retain ownership of your home. In case of your death, the person who inherits the house will need the loan if they decide to keep the house. A reverse mortgage is not dependent on your health, income or even credit history.

Many seniors may decide to use a reverse mortgage for something other than a dream vacation. Seniors may decide to use the funds towards paying off their current mortgage, some may decide to use the money for health care, or even daily living expenses. The fact that a reverse mortgage allows seniors to have their own financial security and independence makes it a very popular option. Most people view a reverse mortgage as a need, meaning they will only do a reverse mortgage because they need the money not because they want the money for trips.

A reverse mortgage can be quite expensive because the cost of the loan includes credit reporting charges as well as appraisal and initiation charges, inspection charges etc. add them all together they can add up to a substantial amount which is deducted from the amount you will receive. If you do not properly manage your cash, you should seek professional to help manage the money you receive from the reverse mortgage in combination with the rest of your funds.

In the last couple of years real estate investment has taken a huge beating. With the markets crashing in most parts of the US and in some parts of the UK, the general mood is grim, as far as real estate is concerned. In almost all parts of the world, home sales have slowed to a snail's pace and value of properties has plunged like never before. The cause is not helped by climbing mortgage rates either.

A good majority of investors are therefore staying away from investing in real estate. Understandable, but a tad overcautious?

It would seem so.

The financial downturn has its benefits. For instance, if you are a buyer in this market, chances are you will make a handsome profit because it is a buyer's market out there. For one thing, rates have crashed. So, anyone making a buy today can be assured that they are buying when rates have bottomed out. Secondly, most sellers have come down from their high horses and are willing to sell if they get a genuine buyer with a reasonably good offer. Some are even ready to sell if they break even. So, if you have the money, there's no reason to hold yourself back.

But there are a number of things you need to remember before investing in real estate.

Real estate is not the stock market. You cannot expect to play it for short term profits. In the past, people have invested in property and flipped it for handsome profits. But that bubble has popped and it is anybody's guess when things will be as they were before. So, play in real estate only if you are in it for the long run.

The second rule in real estate investing is to always, always be prepared for the deal. Many people buy as a direct result of knee jerk reactions to all the bad news they hear. That's the natural thing to do when sources around you are pushing nothing but volatile pieces of news. But a wise investor needs to be objective and dispassionate in their decision.

The best way to achieve objectivity is to collect as much information as possible. Every investor needs a systematic and disciplined approach to the investment process and must act in keeping with a grand plan of events.

Another important thing to remember in real estate investing is to keep your risks proportionate to your ability to absorb these risks. Make an investment only when you are financially capable of it. For instance, a person who is accumulating assets can take higher risks than, say, a retiree.

For someone looking for an opportunity to invest in real estate, the sky is really the limit. As the economy picks up and growth begins to make itself felt once again, the wise can make huge profits. However, the bottom line is that investing in real estate is a huge risk. You can win only if you utilize and take advantage of superior research, planning and high quality financial planning.

How do second mortgages work?

More commonly known as a home-equity loan, a second mortgage is a type of secured loan that you take out on your property using the equity it has. The amount of money you will be allowed to borrow is based on the market value of your property minus your balance from the first mortgage. For example, if you own property that has a market value of $100,000 with a balance of $40,000, then you have a $60,000 equity credit line. You would then be allowed to borrow up to that much for your second mortgage.

Why make use of your equity?

There are times when you may need money in order to pay for certain things. Making improvements in your home and purchasing new appliances are just some of the more common reasons. A second mortgage might be more beneficial to you financially than using conventional credit cards because the interest rates on home-equity loans are much lower. This is due to the fact that it is a secured loan. In certain circumstances, it might even be possible to have the interest you pay in a second mortgage become tax deductible.

Two Types of Home-equity Loans

There are two types of loans you can choose from if you are a property owner looking to get a home-equity loan, open-end loans and closed-end loans.

With a closed end loan, the borrower will receive one lump sum up to 100% of the value of the property, minus any liens. If you choose this type of loan, you would not be able to borrow anymore after that first initial payoff.

An open-end loan revolves. This means you will be able to choose when and how often you want to borrow. You will also be able to borrow up to 100% of the value of your property, minus any liens.

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Buying a second mortgage for homes has emerged as a feasible option for people who are unable to make the requisite down payment for the property. First of all it is important to understand how a second mortgage works. Suppose you wish to buy property and don’t have the required 20% of the sale price as the amount to make the down payment. One option for you is to opt for private mortgage insurance for the required amount. In this, you will again need to make a small down payment and then make monthly installments for the rest of the value.

Another option is to take loan in two installments. Let us, for example, assume that you are in a position to make 10% down payment. That means you will require 90% of finance. In this case, you will get 80% loan as the first mortgage and the remaining 10% will be financed as the second mortgage.

This is also called piggyback financing. But you must keep in the mind that interest rates for second mortgage is higher than that of the first mortgage. This is because the risk factors are greater with the second mortgage loan as compared to the first mortgage loan. If there is a financial crisis, the primary loan or the first mortgage loan will be paid first. The second mortgage or the subordinate loan will be paid later.

To sum it up, second mortgage loans are loans with a fixed rate of interest. As in the case of the first mortgage loan, the second mortgage loan will depend upon your credit history and also the current rate of interest prevalent in the market. Generally the rate of interest is higher but the fees involved are lower.

Second mortgage loans provide an excellent opportunity to raise money for home buyers facing financial difficulties in raising the requisite money required for the down payment. Therefore, buying a second mortgage is fast gaining popularity for raising the cash needed for buying property.

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Read enough about the Phoenix (or elsewhere) real estate market, and someone will start spouting statistics. And while market stats are important to understand, one must exercise extreme caution in interpreting them, or listening to others interpretations.

Let's take a look at "Days on Market" (DOM), or "inventory", or "months supply". Whatever you prefer to call it, it is an oft-cited indicator of overall market conditions. And generally speaking, it's not a bad indicator. The supply of homes available for sale is a key component in understanding the overall real estate market conditions.

It is important to understand a few things though:

* Our current market really consists of three major categories of inventory: 1) Bank/lender owned homes (also known as REOs); 2) pre-foreclosure/ short sale properties; and 3) "normal" properties (homes that are owner/investor owned and not in a pre-foreclosure status).

* Real estate is local. And the Phoenix metro area is a BIG place. Any time statistics or price indexes are quoted for the entire Phoenix area, you have to understand that conditions across the Valley can vary dramatically. Even within a suburb, conditions can vary from subdivision to subdivision. Within a single large Master Planned Community, conditions can vary from neighborhood to neighborhood.


The supply of homes is a perfect example. The general consensus in the real estate industry is that a six-month supply of homes is considered a "balanced market". Less than a six month supply means we are in a seller's market and more than a six-month supply is an indicator that we are in a buyer's market.

At this moment in time, if you look at all the available inventory of homes across the Phoenix metro area, there is a 5.2 month supply of homes.

If you're a seller, you may be thinking, "Hallelujah! Phoenix is a seller's market!" and if you're a buyer you may be thinking, "Crap. I should have bought a home a couple of months ago when it was a buyer's market and I would have had more negotiating power."

Let's look at the categories of inventory that make up this number...

If you extract the data for just lender owned properties, you'll see a much different picture.

Currently in the Phoenix metro area, there is only a 1.1 month supply of foreclosed homes. That indicates a very strong sellers market for foreclosed homes. A close examination of the data shows that foreclosure inventory is down, sales are up and pending sales (those homes under contract but not yet closed) are also up.

OK, so now you need to understand why these numbers are what they are. And sometimes the numbers alone won't tell the whole story. Nothing in the numbers tell you that some large lenders and the Government Sponsored Entities Fannie Mae and Freddie Mac imposed moratoriums on foreclosures that are in the process of being lifted. Nothing in the numbers tell you that there is still a lot of short sale/pre-foreclosure inventory - much of which slips into the lender owned category when it doesn't sell on the open market.

There are almost 12,000 homes listed in a short sale position. And it would take 15.2 months to sell all the existing short sale properties - if there were no more properties placed on the market.

The simple fact is, no home lasts for 15 months in a short sale position. The lender will foreclose long before that time period expires.

And what if you are a "normal" seller? Just the guy who owns their home and wants/needs to sell it. You aren't in trouble with the payments, and you've got enough equity to sell at current values and repay your loan (and hopefully pocket a little cash at close).

There is a 11.9 month supply of "normal" homes. You my normal seller are still looking at a strong buyer's market. Yes, sales and pending sales are trending up, but they are nowhere close to what they were last year and the year before. On average, you can expect it to take almost a year to sell your home. And guess what? You also get to compete with that foreclosed home across the street. The seller there is a bank that has probably already taken it in the shorts, they have no emotional investment in the home, and they've priced it very aggressively to get it off their books.

The Bottom Line

Not all statistics are as they appear, nor does any one stat tell the entire story. Consolidating all types of listings across an area the size of Phoenix metro into one number is usually very misleading. Look closely at all real estate stats, keeping in mind that the variations across market segments and location can swing wildly (and change quickly). You should try to understand what the real estate market is like in your location, for your type of home in your situation. Just keep in mind that it is very easy to generalize and misinterpret real estate market stats, particularly the data that aggregate large areas of completely different property types.