As you watch your parents age, you have memories of all they’ve done to help you succeed. You think of the times they gave you gas money in college or when they bought a crib for your firstborn.
You want to repay them and help them buy a beautiful home for their retirement years. If you’re wondering how to help your parents buy a home or how to buy a home when you’re older, short term mortgages could be your answer.
Keep reading to learn about how short term mortgages can solve the problem of elderly individuals seeking mortgage help.
What Are Short Term Mortgages?
A short term mortgage is a mortgage that matures in ten years or less. It comes with higher monthly payments because of its shorter term.
However, if a near-retiree can afford the payments, then a short term mortgage will ultimately save money and give that individual a beautiful home in a short amount of time.
Short term mortgages work for individuals with little debt and overall financial security. So if your parents have a regular source of income and can afford a high payment for a few years, the short term mortgage could work for them.
Considering Mortgages For Elderly People
Elderly people who are looking at mortgages must keep a few things in mind as they begin the application process.
First, a bank will assess your income through asset depletion. They will total the value of your financial assets and then subtract the cost of a downpayment. They then take 70 percent of the figure left and divide it by the number of months in the potential loan term.
This process helps the lender determine the potential monthly income with the mortgage payment.
Also, retirees must have a low debt to income ratio with no more than 40 percent of their monthly earnings going to pay off debt. They must also have an excellent credit score.
Pros Of Short Term Mortgages
A short term mortgage has several positive sides to it. For one, some banks actually have a lower interest rate for a short term loan. The lender may see it as a less risky investment than a long-term mortgage.
Ultimately, the interest of the loan costs less as well because you’re paying for it over a shorter amount of time.
You also build more equity into your home more quickly because you’re paying the home off fast.
Cons of Short Term Mortgages
On the downside, a shorter repayment period means you’ll have a high monthly payment. This means you’ll have less discretionary monthly income and less of a monthly cushion for when things go sour in life.
At this point, you also want to consider the question of should your parents sell their home. Doing so would create a chunk of cash for a downpayment and make the loan more feasible.
With the right income and borrower, a short term loan can work. However, there are other options for elderly home buyers.
There are home loans for elderly parents such as a family opportunity loan. This loan works well if you want to buy a home for your parents.
Typically, when you purchase a second residence, you do not receive as good of a loan rate because you’re purchasing a rental house.
However, with a family opportunity loan, you prove that you’re purchasing a loan for your parents. As a result, you’re eligible for cheaper rates.
Go Long For a Short Term
While short term mortgages sound risky, the financially secure parent or child can make them happen. Furthermore, they’re done quickly.
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