What would you do if the amount you owed on your mortgage suddenly showed up on your credit card bill?

Chase Bank

Here’s a little background.  I’ve had a Chase credit card for years and have been paying the bill with our online bill pay service for most of that time.  A while back, Chase Bank also bought our mortgage; which screwed up my online bill pay processing for our home loan for a month or two.  After spending time on the phone and getting late fees reversed, I thought I was all set with our automated billing/payment.

Unfortunately, the customer service person who had helped me straighten out the online account for our mortgage had only solved a part of the problem.  When they added the home loan account they somehow “hid” the credit card account, which meant it no longer showed up online.

Chase Credit Card Late Payment

Since the credit card was hidden in the online interface, the electronic bill wasn’t sent to my  online bill pay company so I never received notice of what I owed.  I do have my credit card setup to send phone alerts when payments are paid or overdue so I was notified the day after the bill was due that Chase hadn’t received payment.  I also got another phone alert telling me that I had reached my credit limit.

Now, here’s the part where my heart leapt from my chest. 

I logged into my Chase account online to see what was going on and I saw the balance due was many thousands of dollars!  Of course I immediately thought someone had stolen our card and was on a shopping spree.  I couldn’t understand how the credit card company could have possibly let them spend that much money before cutting the card off.  We’re not talking 10K or 20K here, we’re talking a LOT of money that showed up on the balance due line.

Chase Customer Service

I dialed the phone number for Chase as fast as possible and I’m sure the lady on the other end of the line probably thought I was about to lose it.  After asking me a few questions, she pointed out that the bill I was looking at online was my mortgage bill, not my credit card bill.  Whew!

I could breathe again.  I was so used to logging into that account to see my credit card statement, I hadn’t even thought about the fact the balance due I saw could have been a home loan.  The customer service lady was reasonable and Chase waived the late fee and finance charges since they had made some sort of technical mistake that caused me not to get my bill.

Then she transferred me to the web department who looked at my account and let me know that somehow my credit card account had been “hidden” from online access.  They flipped a switch and right away I was able to see both types of statements.

So now I’m back on track with our online bill pay for both bills and am glad I didn’t have a heart attack during the few minutes I thought my credit card balance was as large as my mortgage payment.

I do get frustrated when big companies miss a detail in your account somewhere that causes you lost time and hassle.  I am glad that Chase was reasonable and refunded my late fees and I must admit she offered some of the best customer service I’ve had in about 8 months.  Luckily, I did have to break out my tips on how to beat bad customer :)

Reverse mortgages were the topic of a post several weeks ago in which we promised to take a look at the downsides of seniors using a reverse mortgage in retirement. Here are some of the disadvantages of using a reverse mortgage to borrow against the equity in a home.

Builds up Debt

Traditional mortgages allow you to purchase a home using financing. As you make monthly payments on the mortgage, you start to pay down on the principal balance you owe. Over time, this decreases your debt amount. A reverse mortgage, however, is the direct opposite. It takes a home that you own free and clear of any debts and creates a new debt on the home.

Significant Upfront Costs

All mortgages have some types of fees and costs associated with establishing them. Most reverse mortgage adversaries claim that the fees and costs of establishing a reverse mortgage are significantly higher. Since many retirees establish a reverse mortgage to provide them with more income, having to pay what potentially adds up to thousands of dollars to establish a reverse mortgage may negate the benefits of the intended purpose of a reverse mortgage.

Decreases Assets to Heirs

If you have children, grandchildren or others you want to leave your assets to, a reverse mortgage may not be for you. A reverse mortgage decreases the amount of equity you have in your home, which directly affects the overall value of your estate. A reverse mortgage does not remove the possibility of leaving your home to your heirs, but your heirs are left with the responsibility of refinancing or paying off the reverse mortgage debt. The other option is for them to sell the home, pay off the existing reverse mortgage debt, assuming they can sell the home for at least the amount owed.

Can Make You Ineligible for Low-Income Assistance

Income from a reverse mortgage can affect your eligibility to receive low-income assistance from the federal or state government such as Medicaid. Check with the agency you’re receiving support from to see if the income from a reverse mortgage may adversely affect this income. Generally, this does not apply to Social Security income and Medicare coverage, but if you receive other types of income, make sure you’ll continue to receive this money if you take out a reverse mortgage.

Restricts Options to Move

A reverse mortgage uses your home as collateral for the mortgage. Since a reverse mortgage requires the home is your primary residence, this restricts your ability to move out of the home while you have a reverse mortgage. Reverse mortgages used as a short-term loan option may end up costing you more than you gain. With the high upfront closing costs, if you move out of the home soon after establishing a reverse mortgage, then you typically do not recoup the upfront costs–meaning you’re losing more than you’re gaining.

Can reverse mortgages be beneficial? Yes. Can reverse mortgages leave you with disadvantages that outweigh the advantages? Absolutely. Be sure to consider the disadvantages of a reverse mortgage carefully before choosing to use one as part of a retirement strategy for you or your parents.

Reverse Mortgage Guide
If you want to know more about reverse mortgages you can also check out a report by Quicken Loans, a branch of Intuit (the companies that creates the software products TurboTax, Quicken, and QuickBooks), that goes into much more depth about who reverse mortgages are right for.

The free guide answers covers topics and questions such as who qualifies for a reverse mortgage, the different types of reverse mortgage options, how a reverse mortgage works, and how much money you can get. Get the free report

After several nights of weighing the pros and cons of buying a house one thing we realized is that we simply didn’t have enough information to make a good decision.  We haven’t been in the real estate market for years now so we don’t really know what our house will sell for or what we should expect to pay for the kind of home we’re looking for.

We’ve started doing some research and talking with our friends in the industry, realtors and appraisers, about the market and about our house. We also decided to start looking at a few homes to get a feel for various neighborhoods and price ranges.

Last time we were house hunting we had no house of our own to sell and no kids so it was a different experience. We spent yesterday afternoon trying to see a few houses and learned a thing or to about house hunting as parents.

Screen Houses Thoroughly Online

We don’t have a lot of free time so we have to be pickier about the houses we look at.  In the past, if we saw a house online that had a few things we weren’t crazy about we might check it out anyway just to see if we liked it. We had time to visit them so there was nothing to lose if we checked out a few houses that didn’t meet our criteira.

Now we can only see so many in a day so we’re only going to look at a house if it meets all of our major criteria.

Leave the Family Behind

After dragging our kids out of their beds from their naps and lugging them around all afternoon we quickly realized that the initial stages of house hunting were not going to be a family affair.

We could move much faster if there was only one of us driving to see homes.  Not only could we cover more ground in a shorter amount of time, the kids didn’t want to be cooped up in their car seats driving around all day.

From now on, one of us will check out a house that we’re interested in.  If we find any in our “scouting” that look good, then we corral the kids and bore them to death with a house visit.

Have a Quick Trigger

If you’re in the middle of checking out a house and you find something that’s a deal breaker, don’t be afraid to bail immediately.  Time is limited and there are more potential homes out there, waiting for you to find them.

We’re generally pretty polite so typically we would feel bad cutting a realtor’s tour short and saying adios.  Plus in the past we might have decided to keep looking around just to see if the rest of the place was awesome and might make up for the major shortcoming.

However, now our time for visiting homes is precious so if we’re in one and see something that is a red flag, we’re out the door.

Make Backup Plans

At the first house we were standing in the rain, car seats in hand, on the front door step of a home that we were scheduled to visit.  The glass storm door was locked and no one was coming to answer it.  The real estate agent was very apologetic but that didn’t do us much good.

We were all dressed up with no place to go.  We had interrupted the kids naps, driven out to this area, and now knew nothing else to look at. Luckily we called some friends in the area and they pointed us to some homes for sale that we could checkout.

From now on we will have a few backups in place around the area of the houses we’re scheduled to see. In case you haven’t noticed a trend, our lessons learned had to do with seeing more of the right houses more quickly.  Having a few alternate houses in mind helps to keep from wasting your time when a house appointment falls through.

If you or your parents have lived in your home for many years and have built up a lot of equity in the property you may have heard about or considered a reverse mortgage as a potential source of income during retirement. There seems to be a wide divide in opinions on whether reverse mortgages are a wise way to leverage equity in a home or a detrimental financial move for living out the golden years.

According to financial advisor Paul Escobar of U.S. Wealth Management, when it comes to reverse mortgages, “Seniors and their advisors should consider them, especially when their sole income and asset is their house.” Today we’ll take a look at how a reverse mortgage works and the benefits they have to offer retirees and seniors.

What is a Reverse Mortgage

A reverse mortgage is the direct opposite of a traditional mortgage because the mortgage lender makes monthly payments to the homeowner. A reverse mortgage is an option available to homeowners that are 62-years of age or older that own a primary residence free and clear of any mortgages or liens. The home also has to have a sufficient amount of equity—what is deemed as sufficient varies by the lender.

There may be other requirements from the lender but credit does not play a role in the qualification process. When homeowners qualify, the mortgage payments can be taken as a lump sum or in monthly installments. Since the amount of the reverse mortgage is based on the amount of equity, interest rate and the borrower’s age, the amount of the mortgage can vary.

Reverse Mortgage Benefits

While all reverse mortgage holders have their own reasons, there are some popular reasons that seniors opt for a reverse mortgage. Jason Roberts of Frost Lending Group points out that the fees for a reverse mortgage are similar to a conventional loan and the interest rates for reverse mortgages are generally lower. He’s helped a range of clients with reverse mortgages—some couldn’t pay for their basic needs, while others had a decent amount of savings but wanted to eliminate their mortgage payment. 

Retirement

Medical Expenses 

Increased cost of living, rising healthcare costs and a decreasing income do not necessarily work in harmony, but is the situation that leads many retirees to a reverse mortgage. Rather than forcing retirees to choose between paying their living expenses and paying for medicine and healthcare, the extra money that reverse mortgage provide allow seniors to pay for all of their needs—medical and daily living.

Home Accommodations

Some retirees use the money from reverse mortgages to make necessary modifications to their home. It may be widening doorways to accommodate the use of a walker or wheelchair or building a ramp to get up and down the stairs. Reverse mortgage payments can cover these costs.

Extra Money

With more time to travel and participate in leisurely activities, money from a reverse mortgage can provide extra spending money. It pays for trips, vacations or activities such as golf and days at the spa. It is an added bonus that allows them to enjoy some of the luxuries in life.

Go Debt Free

With another source of income for normal living expenses, many retirees use reverse mortgages to reduce or deplete debt. Without debt, the reverse mortgage money becomes additional cash flow that can be applied to other expenses.

After a discussion in her own mind and with her daughters, 77-year-old Francine Trevins opted for a reverse mortgage on her Manhattan loft. Francine says she has a wonderful life now because she is relieved of the “burden of a mortgage.” Her only concern is outliving the mortgage amount.

When it’s Right

Whether a reverse mortgage is right is different for each person. Talk with your financial advisor, tax consultant and estate attorney to go over the specifics of your situation. Don’t make a decision on what someone else has done because situation-specific reasons why reverse mortgages work or not vary too much.

Some of the questions you want to answer:

• Is there family you want to leave the home to?
• Do you have sufficient income to live out your retirement years?
• What plans do you have for retirement? Continue to work part-time? Travel?
• How old are you?
• Is there equity in the home? Is your home paid off?
• Do you have other sources of income?

Reverse Mortgage Dangers

Even the experts agree that there are drawbacks to reverse mortgages in some situations. In this article on reverse mortgage disadvantages we take a look at the potential dangers of reverse mortgages and what to look out for.

You can also check out a report by Quicken Loans, a branch of Intuit (the companies that creates the software products TurboTax, Quicken, and QuickBooks), that goes into much more depth about reverse mortgages.

The free guide answers covers topics and questions such as who qualifies for a reverse mortgage, the different types of reverse mortgage options, how a reverse mortgage works, and how much money you can get. Get the free report

Adjustable rate mortgages may not be as popular as they were only a few short years ago but they can still be beneficial if you only need to borrow money for real estate for a relatively short time period.  Here’s a look at what adjustable rate mortgages are and who they can benefit.

Adjustable Rate Mortgages

The adjustable rate mortgage does exactly what its name implies. It adjusts the interest rate of the mortgage during the life of the loan. Many adjustable rate mortgages have a fixed rate period of 1, 3, 5, or 7 years, and then the interest rate adjusts to a specified rate index

These loans are often referred to using the format, a 3/1 or 5/1 ARM. This means that the interest rate is fixed for 3 or 5 years, and then it adjusts to an index rate, such as LIBOR, plus some margin amount added on by the lender.

During the fixed period, the loan acts like a fixed rate mortgage. It charges the initial interest rate agreed to in the mortgage note. Once the fixed rate period is over, the interest rate and the monthly payments due are re-calculated based on the index rate.

Most adjustable rate mortgages have caps in place which limit the scope of the potential rate changes.  These caps typically determine how often the interest rate for the mortgage is allowed to change and maximum amounts that the interest rate is allowed to reach over time.  For example, the caps may say that interest rate can only be adjusted every six months and can’t be adjusted by more than 1% a year.

Adjustable Rate Benefits

Although interest rates are historically low right now, in times when rates are higher, adjustable rate mortgages can offer advantages for shorter term loans. When rates are higher the introductory interest rate on ARMs are significantly lower than they would be on a fixed rate loan. For investors or consumers who only plan on owning a piece of real estate for a several year time frame an adjustable rate mortgage allows them to pay lower interest rates.

For example, if you move to a new town and know you’ll be moving back in few years there is no need to borrow the money to buy a home for a 30 year term.  Lenders charge more for 30 year loans to compensate for the additional risk they take on by lending you money for a longer term.

If you only need the money for a shorter time period, you can pay less in interest if you borrow it for a shorter period with an adjustable rate mortgage.

Adjustable Rate Cautions

During the 1990’s and early 2000’s, adjustable rate mortgages became popular for buyers with less than perfect credit or little capital. The lower inital interest rate was used as a means to help buyers qualify for more house than their income could support long term. 

Of course we’ve all seen what happened to the housing market and the economy when too many people tried to borrow more than they could afford. An adjustable rate mortgage can be a useful tool for lowering your interest payments if you’ll only own real estate for a short period of years.  However, if you use it simply to get lower initial monthly payments on a piece of property that you couldn’t afford at higher interest rates, the adjustable rate mortgage probably isn’t the best financing option for you.