Unlike traditional loans where your loan amount is based upon a percentage of value, perhaps 80% loan to value (LTV), a reverse mortgage is calculated using a special formula. This formula takes into account the unique nature of a reverse mortgage.
The home value is the first factor and has a current limit of $625,500.00. It also takes into account that an older borrower will most likely terminate the loan before a younger borrower due to death, sale or vacating the property due to health. The last remaining factor is the expected interest rate on the loan and allows for the fact that over time the loan balance on a reverse mortgage is rising and the equity will likely be falling.
So you have 3 factors to consider:
- Home Value or Lending Limit (whichever is less)
- Age of the youngest borrower. (both must be over 62)
- Expected Interest Rate. (or 5% whichever is higher)
Things to know -
- The higher the home value (up to the lending limit of 625,500.00) the higher the amount you may borrow.
- The lower the expected interest rate (or 5% whichever is higher) the more you can borrow.
- The older the youngest borrower is the more you can borrow.
There are online reverse mortgage calculators that you can try, but beware that some are “lead generating” websites and you may be inviting sales calls. You can use my calculator and only have to deal with me calling or you can try this calculator.The “formula” is a publicly available from HUD and you can see the factors as calculated by age and expected interest rate. All you add is the value to get a number. Remember, a home valued at over $625,500 will be calculated as if the home value was $625,500.00
Jeannette Grismer, Reverse Mortgage Consultant
This is a personal blog containing my own thoughts, ideas and opinions and does not necessarily reflect the opinions and thoughts of Wells Fargo Home Mortgage and their employees.
;)
;)
