Simple Tips for Controlling Mortgage Cashflow

Since we are in the middle of rising mortgage rates and potential foreclosures, I want to suggest a few ways for folks having cash problems to avoid potential disaster.

The number one rule is not to close your eyes and ignore the problem that you are having. It is best to read the signs and address problems that you see coming down the road. The biggest mistake would be to allow yourself to make late mortgage payments. That will virtual eliminate about 90% of the solutions you would otherwise be eligible to receive.

If you have an adjustable rate mortgage that you know will reset soon, pull out the paperwork and find out what new rate is due to adjust. Refinance ahead of time, because mortgage rates are pretty low right now.

Also, if you have consumer debt (e.g. car loans, credit card balances, etc) that has a high interest rate (8% - 20%), you can consider paying off those loans with a cashout refinance. This only works if you have enough equity in your home. This strategy will give you a fixed mortgage rate and reduce your total monthly obligations.

The Federal Housing Administration (FHA) loan is also making a comeback. While most lenders require that you keep 20% equity in your home on a cash-out refinance, FHA will allow you to keep just 5% equity in your home. This results in a much larger cash-out refinance.

With the squeeze in credit availability and the rise in consumer monthly payments, these suggestions should help you to manage your monthly cash flow.

Basics of a Reverse Mortgage

Reverse mortgages are starting to grow in popularity. In general the borrower must be over 62 years of age. This type of mortgage allows the borrower to receive monthly cash payments by tapping into their home's equity every month.

The mortgage interest that the borrower will usually pay is added to the balance of the reverse mortgage. So the debt against the property increases each month. Most reverse mortgage programs do not have income qualifications. A retiree with no income can qualify. The interest varies and can fall between 6 percent and 9 percent. The closing costs for a reverse mortgage are generally higher than with a regular mortgage refinance $15,00 - $20,000). The lender may also may keep the appreciation accrued in the home once the borrower passes, even if this appreciation is more than necessary to cover the remaining mortgage balance.

In my opinion, reverse mortgages are only good for individuals that do not have an income. If a retiree has some sort of income, a home equity line of credit (HELOC) may be a better choice. They have much lower closing costs and allow you to keep all of the remaining equity in your home, which allows you to pass it to your heirs.