Take my case for instance. When I bought my condo 5 years ago, I paid $290K for it, and at the peak of the market, its value approached $475K, but right now, it’s value is only appraising at about $250K. This sucks, because in order to refinance, I can only borrow 80% of my homes equity, or $200K if my home appraised at $250K exactly. The banks don’t take into consideration that I’ve been on time with ever mortgage payment over the last 5 years, and that I’ve even made extra principal payments in some of those years in order to accelerate my mortgage.

If you have enough equity in your house, now is the time to refinance, but if your home value has dropped, as most homes in the Southern California area have over the past year, you just may find yourself in a situation similar to mine – having your home refinance denied. It’s a very unfortunate situation when someone like myself who takes pride in having great credit has a refinance declined because of the current state of the market.

I’m currently looking at a couple other options that will help me get refinanced, and I’ll keep you all posted if I find a way to lower my interest rate.

Let’s just briefly compare a 30 year mortgage to a 50 year mortgage for a $250,000 home loan. On a 30 year loan, you’d be looking at a monthly payment of about $1498.00, and over the life of the loan, you’ll be paying $289,595.00 in interest – so even with a 30 year loan, you’ll be paying more interest than the original amount borrowed, but now lets look at the 50 year mortgage loan. With a 50 year mortgage, borrowing the same amount, your montly payment will only decrease about $200 per month (not even actually) to $1,316.00, and the total amount of interest paid will skyrocket to $539,607.00. The amount of interest that you pay on a 50 year loan will nearly double!!!

Now lets think about this for a bit. Will saving $180.00 per month on your mortgage payment be worth adding 20 years to your mortgage, and also adding an additional $250,000+ to the amount of interest that you pay over the life of your loan? Let’s figure that you invested that extra $180 every month into a savings account or CD. Let’s figure for arguments sake, that you find a savings account or money market account that will yield 5% and that you invest the extra $180 every month and let the interest compound. At the end of 50 years (the entire length of your mortgage) you’ll have $480,357.00. This will essentially offset the interest that you pay on the 50 year mortgage, making the total amount of mortgage paid equal to about $60,000. Looking at it this way makes the 50 year mortgage look more appealing because it frees up more monthly money to use as an investment, however here are the only problems that I see with this:

1. Most people probably only consider a 50 year mortgage because of the fact that they’re looking for a way to lower their monthly payment. That being said, most people who elect to go with a 50 year mortgage aren’t going to be able to put the extra $180 (from our example) into a savings account in each month for the 50 year term.
2. Life happens, even if a person has an extra $180 to put into their mortgage each month, there are often times going to be months where no money gets put in, whether it be due to:
   1. Holiday expenses
   2. Unexpected auto expenses
   3. Traveling and vacations
   4. Purchase of new vehicles

In my opinion, a 50 year mortgage is a terrible idea, but if you’re planning on staying in your home for the rest of your life, if you are discipllined enough to invest monthly and not withdraw, you could actually make the 50 year mortgage more favorable.

When is a 2nd mortgage right for you?

There could be any number of reasons why a person would consider taking out a second mortgage. If you have a large amount of other high interest debt, such as credit card debt, it may make sense to take out a second home mortgage to payoff this debt. You may want to use the second mortgage to make an investment, whether it be in the stock market or a vacation property. You may just want to live above your means and buy a boat. The use of the second mortgage will in the end, be up to you. When I bought my first condo, I took out a second mortgage loan in order to avoid paying PMI (private mortgage insurance).

Interest Rates for Second Mortgages

As mentioned above, the interest rate on a second mortgage will typically be higher than the interest rate of a primary loan due to the fact that a default, the first loan is paid of prior to the 2nd. The interest rate will also be determined by the amount of the loan – the larger the percentage of home equity that you are borrowing against, the higher you can expect the interest rate to be.

Before applying for a second mortgage, make sure you talk to your broker and understand all of the details of the loan. Remember that no matter what the amount of the 2nd mortgage is, even if it is only a fraction of your primary mortgage, if you default on the 2nd mortgage, you could lose your home. Be sure to do your research and have a solid knowledge of your budget prior to securing a second mortgage.

Reverse mortgages give seniors who are no longer able to work or generate income a way to leverage the equity in their house to start receiving a monthly income once again. The payments received from the reverse mortgage can be used to pay medical bills, credit card debt, or any other expenses that may be necessary.

Qualifications & Requirements of a Reverse Mortgage

You must be 62 years or older, and the home that the reverse mortgage is being taken against must be your primary residence.

How much money can I get from a Reverse Mortgage?

The reverse mortgage amount will depend on your age, interest rate, and the value of your home. Typically, the more valuable your home is and the older you are, the more money you will be able to borrow with your reverse mortgage. A lower interest rate will also affect the amount of money that you can borrow.

How will I receive the money from a Reverse Mortgage?

You will generally have three different options when choosing to receive money from a reverse mortgage. All of the amounts will be determined by the above criteria.

1. Monthly payments
2. Lump sum
3. Line of credit