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Home Buyer's Recession Survival Guide - Offset & Reverse Mortgages

Updated on May 26, 2009

An offset mortgage is one where you can use your savings to "offset" the interest on the mortgage. It's a little bit of leger de main where you're shifting this money over here so that money can be shifted over there, but it can present some very interesting advantages.

What you're doing in essence is that you are giving up the interest on your savings account to equal out the mortgage interest. Depending on the rates you're getting, you could actually end up wiping out the mortgage interest entirely.

Let's assume that you have a $250,000 mortgage. But you also have $125,000 in savings. You can use the interest from your savings to pay half of the interest on your mortgage!

An extra added advantage is that since you are not receiving any interest on your savings, you don't have to pay any tax on it either as it is going towards mortgage interest which is tax deductable.

In many cases, a borrower will take out a High Ratio Mortgage of up to 95%, have the earnings from his savings service the debt and live happily ever after. There are some variations in this strategy arising which find a form of consalidation loan being offered which can wrap up personal debts such as car loans, consumer credit and credit cards.

The mortgaging bank will merge the mortgage and savings account into one single account, therefore there is only one balance to keep an eye on. This form of merged account is known as the Common Account Mortgage.

There are even perfectly good reasons why you wouldn't want to just empty out your savings and just plunk them down on your mortgage in one lump sum. Should an unexpected financial need arise, you are always free to unlink the savings and mortgage and return to paying normal interest on the residential loan, while having your full savings free so you can do whatever you need to with them.

An offset mortgage takes a bit of time to get used to, but it can be a superb option for home owners with substantial cash savings.

As for a reverse mortgage, most people have no idea what a reverse mortgage is or why anyone would want one. It actually turns out that in some cases, a reverse mortgage can be a complete godsend.

A reverse mortgage is somewhat similar to the situation where you were the lender and you were granting a mortgage on your own house to someone else. They make payments to you, and they keep earning equity in your house every month. HUD provides a variety of great benefits, all fully insured, and will guarantee you that you will never have to repay a penny as long as you continue to reside in that property. A great aspect of this program is that you can't outlive the loan. You stay in your house as long as you want.

It differs from a second mortgage or home equity loan in that in those cases you get a lump sum of cash, they take a fixed chunk of equity and then you make payments to buy that equity back over time. A reverse mortgage doesn't give you any cash up front, but neither does it take your equity all at once. Consider it a way or allowing your equity to be nibbled away at in exchange for a check in the mail every month.

You have to be a minimum of 62 years old to apply for a HUD reverse mortgage and you have to either own your home outright or have a relatively small mortgage balance which would be paid off with the proceeds of the reverse mortgage. HUD will also require you to consult with an approved financial counseling agency before proceeding.

HUD is very flexible on what you call your home. They will consider single family dwellings, multiple family houses up to four units, even some manufactured homes, townhouses and condos! And the property need not have been financed through FHA. It is irrelevant what type of mortgage was on the house or who underwrote it.

There are a great many variables to be considered before you determine that a HUD reverse mortgage is for you. Your local housing counselling agency can certainly assist and provide any information you may require.

Read The Entire Survival Guide

Home Buyer's Recession Survival Guide - The Subprime Meltdown
Home Buyer's Recession Survival Guide - The Advantage Of Renting Over Buying
Home Buyer's Recession Survival Guide - Why Rent? Why Not?
Home Buyer's Recession Survival Guide - Five Common Mistakes House Buyers Make
Home Buyer's Recession Survival Guide - Get Your Home Sold Quickly & At Your Asking Price
Home Buyer's Recession Survival Guide - Improve Your Home's Value And Sell It For More!
Home Buyer's Recession Survival Guide - Learn The Value Of Curb Appeal
Home Buyer's Recession Survival Guide - Home Staging: Valid Selling Technique Or Fraud?
Home Buyer's Recession Survival Guide - Before You Go House Shopping
Home Buyer's Recession Survival Guide - The Home Condition Checklist
Home Buyer's Recession Survival Guide - Getting A Mortgage From Different Types Of Lenders
Home Buyer's Recession Survival Guide - What To Do After You're Turned Down
Home Buyer's Recession Survival Guide - New Initiatives To Help Get You Approved
Home Buyer's Recession Survival Guide - Isn't HUD An Old Paul Newman Movie?
Home Buyer's Recession Survival Guide - Jumbo Isn't As Huge As He Once Was
Home Buyer's Recession Survival Guide - FHA Q&A
Home Buyer's Recession Survival Guide - The FHA's Credit Requirements Vs. The Bank's
Home Buyer's Recession Survival Guide - Your Credit Score And Your Mortgage
Home Buyer's Recession Survival Guide - Credit Score Confusion
Home Buyer's Recession Survival Guide - Keeping That Credit Score Nice & High
Home Buyer's Recession Survival Guide - Minimize The Interest Payable
Home Buyer's Recession Survival Guide - What Is PMI & Why Do I Care?
Home Buyer's Recession Survival Guide - The LIBOR-COFI-COSI Alphabet Soup
Home Buyer's Recession Survival Guide - REO: Get Rich Quick Or Just Waste Time?
Home Buyer's Recession Survival Guide - Obtaining Flipping Money
Home Buyer's Recession Survival Guide - Consider The Additional Costs
Home Buyer's Recession Survival Guide - What Is Escrow?
Home Buyer's Recession Survival Guide - Tips To Avoid Foreclosure
Home Buyer's Recession Survival Guide - The Changing Value Of Your Mortgage Dollar
Home Buyer's Recession Survival Guide - How To Ride The Interest Rate Spikes
Home Buyer's Recession Survival Guide - Can't Get A Mortgage? What A PITI!
Home Buyer's Recession Survival Guide - Calculating Your Closing Costs
Home Buyer's Recession Survival Guide - Mortgage Broker or Mortgage Banker?
Home Buyer's Recession Survival Guide - The Magic Of A Down Payment
Home Buyer's Recession Survival Guide - A Refinance Checklist
Home Buyer's Recession Survival Guide - Refinancing With Bad Credit
Home Buyer's Recession Survival Guide - The Self-Employed Mortgage Maze
Home Buyer's Recession Survival Guide - VA Loans
Home Buyer's Recession Survival Guide - Offset & Reverse Mortgages
Home Buyer's Recession Survival Guide - The Reasons To Not Buy An Offshore Retirement House
Home Buyer's Recession Survival Guide - How To Pay Less Than $500 A Month
Home Buyer's Recession Survival Guide - Five Easy And Cheap Tips To Save Big $ On Energy

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