Tag Archive | "proceeds"

IO Loans and Mortgages

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The Interest only or the IO loans are of the greatest benefit to the first-time homeowners or borrowers. More specifically speaking, the IO has the greatest benefit to the lenders and borrowers as they become qualified for those mortgages, they are usually not allowed to finance homes with.

According to various definitions, these loans are made by making small payments per month and are different as compared to the standard loans that are conventional and principal-repaying. Overall, these loans are a great benefit to first-time homeowners or borrowers as it acts as an increase in the disposable income of the individuals.

However, these loans also hold a certain amount of risk in them provided the borrowers mismanage their finances. Below are the types of financing that may affect the borrower’s fiscal situation.

IO Mortgage:

IO Mortgage

To start with, the IO mortgages do not really require a payment of principle, which means that it is much lower than a comparable principle repaying the mortgage. Furthermore, it is also apparent that the proceeds made to further allow the borrowers to reach for larger loans than the comparable conventional mortgage.

As for the interest rate, it is usually higher than the conventional mortgage. With the higher interest, the IO loans also become a recipient to a high level of default risk than conventional loans. Furthermore, some circumstances might as well present defaults on an IO mortgage where the lenders may have more to lose as compared to the other.

IO Loan:

For the sake of comparison, the current situation will require an IO loan that excludes a principal repayment period.


From an advantageous domain, the IO manages to aloe the borrower to determine the right and achievable amount of equity that is bound to be accumulated over the period. Read the full story

REX Agreement Analysis

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Rex Agreement should be used by those homeowners who desire to lessen the risks to their home-equity or by those who have more opportunities with greater returns than home equity. Reinvestment of money and effective sale of home is allowed by the home-equity risk/return sharing agreement. Explained here is the REX & Company’s agreement, the impacts after-tax have and also explain through a few examples in order to help potential users to evaluate whether the benefit is to be driven from it or not.

Effects Of Tax:

Effects Of Tax

This agreement is like a forward sale contract with an unexecuted contract before termination. Just as an option is employed Tax-accounting is employed in a similar way. The upfront payment of the sale of the house is taken as a part of the proceeds from the sale when the contract ends with the house sale and sale proceeds are offsetting by the final settlement payment by the homeowner of REX & Co. The gain on the hedge is not taxed as long as the sale is within the excludable amount on the principal residence.

When an REX agreement is finished, there is no cure under the tax code if the agreement breaks before a sale. The payment by REX & Co. is liable to Tax as ordinary income. Just as the capital loss is dealt with at the time of closing of an option contract, REX & Co. termination is treated the similar way.

Analysis At Breakeven:

The contract is beneficial only for long-term hedging, if the agreement ends in the first five years as the homeowner is unable to collect the house-pricing depreciation. If the cash returns are good, even then a two or three year agreement might be beneficial. For coming out ahead, only collective tax returns on the cash to exceed are required. Figure shows the maximum increased rate for which the homeowner’s profit is exactly zero during each of the first six years – assuming a 50% sharing REX agreement and 6% after-tax returns on the up-front cash received by the homeowner.

Mathematical Example:

A homeowner should be fully aware of all the financial results, although the risk management of using REX agreement as a hedge is distinct. Read the full story

Does Reverse Mortgage Really Work?

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Although reverse mortgage has existed since 1960s, but recently it has started appearing as a very feasible debt instrument for public. But the main question is how reverse mortgages can be very harmful to people in different situations in spite of its convenience.

Defining Reverse Mortgage:

Reverse Mortgage

The reverse mortgage is defined as the mortgage that gives homeowners the ability to have the equity in the homes devoid of the regular payments each month. The both options of either a single lump sum or a monthly payment of the proceeds exists that is very useful for the customers who need to pay medical or other such bills.

Suitability of Reverse Mortgage

It presents the advantages below for the people that fit in its criteria.

  • Absence of the downside risk  for a homeowner
  • No Constraint on free of tax funds
  • Absence of credentials of income
  • Stretchable repayment choices

In loads of cases the customers who plan to live in their house until the time of their death are the suitable applicant for whom it is feasible to lessen the income from selling off their homes by the amount of mortgages. Along with this, clients that look for decreasing the taxable domains are also the ones involved in this type of loan.

There are certain obligations for a reverse mortgage. For instance, many of the reverse mortgages obligate the homeowners to maintain a fine condition of their homes until the length of the term. It gets difficult for those who have a health and other physical problem of the kind and all those who are unable to meet this clause then are likely to face foreclosure. Furthermore, those who live on a fixed income; it gets problematic for them to maintain the condition. Thus, to know exactly what a lender needs in terms of maintenance and upkeep it’s crucial for a reverse mortgage to review this problem. Read the full story

Types Of Real Estate Investment Trusts

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Real estate Investment trusts are the most significant consideration when making any equity or fixed-income investment. This is because of the involvement of greater expansion, lower risks, and larger proceeds. Also because of their ability of creating dividend income along with appreciation of capital makes them a brilliant offset to stocks, bonds and cash. REITs usually possess and administer income creating commercial real estates whether these are properties themselves or mortgages on these properties. Below is given some description about the five types of real estate investment trusts:

Retail REITs:

Retail REITs

It signifies the single largest investment by type in USA. Whatever shopping center you visit, it is most probably owned by REIT. When you think about investing in a retail real estate, you must first of all scrutinize the retail industry.

These trusts normally earn from the rent they receive from the tenants. If the retailers are encountering cash flow problems, delay or default in payment is likely to take place, finally compelled into bankruptcy. At that particular time, some new tenant is required to be located which is not an easy task. In underdeveloped economies, REITs with favorable cash positions can access a lot of decent opportunities at distressed prices.

Residential REITs:

Some REITs own and manage multi-family rental apartment buildings and manufactured housing. Before making an investment in that type of REITs, one has to take into account some important factors. For example, the best apartment markets are likely to be at those places where the affordability of home is lower as compared to the other areas of the country. Read the full story

Drawbacks of Reverse Mortgage

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Reverse mortgage is the ideal tool for retired or elderly citizens to take out an income in any form i.e., installments or lump sum by putting equity which they have raised in their homes. It is really helpful for elderly citizens who are in great need of income to meet their everyday expenses, but still it has some drawbacks. These drawbacks are listed below:

High Fees & Charges

Reverse Mortgage

Individuals taking out reverse mortgage loan putting the equity on their home, but still banks charge them a high fee to initiate their transactions. In reality, ReverseMortgage.Org stated that as a portion of a reverse mortgage, homeowners may sometimes be required to pay of an initiation fee that is $2,000 or 2% of the total amount of loan. Many homeowners add this fee into the amount of loan and pay off it with interest on loan over the term of loan.

In addition to this fee, there are several other fees that homeowners are required to pay off. These fees include appraisal fee that can be of several hundred dollars, a recording and credit report charge that is about $200, a flood certification and a pest inspection fee that is about $150. Homeowners may be responsible to buy mortgage insurance coverage and for this they have to pay off a service fee that ranges from $30 to 435 per month.

Transfer of Your Family Home to Your Children

Usually parents want to pass their family home onto their offsprings. However, with reverse mortgage even though the lenders do not take the home’s title, borrower has to pay off the mortgage within a given period of time with interest. In most of the cases, borrowers repay the loan by selling their home and after that they turn over the proceeds or a part to their bank.

Many families buy an insurance coverage on the homeowner and they use their adult child or the lender as the beneficiary. This strategy helps such families to repay the bank without having to sell their home upon the death of the homeowner. It is advisable to you to consult with an authentic and expert insurance agent to find out the best option to make sure that if such insurance policy is good enough to fulfill the outstanding debt.

Affect on Future Financing Abilities

An individual is said to be creating a big liability when they start a reverse mortgage. It is because they have to repay the loan with interest. However, many borrowers do not realize that they are more likely to hurt their future financing ability by establishing a reverse mortgage.

Read the full story


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