Reverse Math
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Learn how your loan amount is calculated.
Your Age & Your Property Value
When You Want Your Money & For How Long
Cost to Borrow
1. Your Age & Your Property Value
Property Value and Reverse Mortgage Cash:
The more your property is worth – subtracting your existing mortgage balance and subtracting any repair costs – the more cash you can receive.
Take a look at this example of a $400,000 home:
| $400,000 | Appraised property value. This is critical since you are borrowing against the property's value. The appraised value is what your lender actually appraises and underwrites (believes) your property is worth. For federally insured reverse mortgages there is also the FHA national mortgage limit of $625,500 to consider. |
| -$40,000 | Subtract existing mortgage balance which must be paid off before you get a reverse mortgage. |
| -$10,000 | Subtract the cost of any required repairs (those that affect health and safety). |
| $350,000 | Maximum amount available to borrow. U.S. Government federally insured reverse mortgages through the Department of Housing and Urban Development (HUD), Federal Housing Administration (FHA), have a national lending limit of $625,500. |
Impact of Your Age and Cash from a Reverse Mortgage:
The older you are and the more your home is appraised for, the more cash you can get. (Remembering, less your existing mortgage and repairs)
You must be at least 62, but look at this example of a HUD reverse mortgage to see the impact of age. The HUD/FHA amortization table basically subtracts your current age, from 100 years, and divides the maximum loan amount by your expected life span. The other reverse lenders also factor your age in the same way, although each one has a slightly different forecast of your expected life span.
An appraised home value of $350,000:
| Age | Amount You Can Borrow |
|---|---|
| 70 | $197,000 |
| 80 | $236,000 |
| 90 | $273,000 |
2. When You Want Your Reverse Mortgage Money
and/or Monthly Amounts
and/or Credit Line
The basic rule of borrowing applies to reverse mortgages:
The more money you borrow (even if it's from your own property), and the longer you borrow it for...the more interest you will owe:
If you borrow a total of $50,000 over ten years at an interest rate of 6%, you will owe $40,969 if you take all of the money up front, but only $18,283 if you take the money in monthly installments.
And the Length of Your Reverse Mortgage
Term – A set number of years
- You must repay the reverse at the end of the specified number of years.
- It's good if you know how long you'd like to stay in your home.
- Allows you to get more cash.
OR
Tenure – An estimated number of years
- Based upon your current age, less 100 years
- Less than "term" because the money you receive must stretch out over your forecasted life expectancy
- Continue for as long as you remain in your home
3. Cost to Borrow with a Reverse Mortgage
- Your Total Annual Loan Cost (TALC) as defined by the US Federal Government Regulation Z, is the single rate that includes all the loan costs. We use it to compare reverse mortgage options (call us for a comparison).
- Your interest rate adjusts monthly or annually, your choice. Unlike refinance or home equity loans, your rate is not based on your credit, loan amount or negotiating skills – it is based Upon Treasury Dep't Ten Year T-Bill, published weekly in the Wall Street Journal.
- "Non-Recourse" insurance – Even if a catastrophe strikes and the value of the home is reduced, you or your estate can never owe more than the current market value of the home.
Putting it All Together
These factors determine what kind of reverse mortgage and how much money we can offer you. If you call us for a consultation we can also discuss other factors such as your lifestyle, budget, and personal financial goals. To get more information, check out "Compared to Other Loans" and "The Reverse Mortgage Cash Calculator".
Call us anytime: 1-800-4-MONEY-4.
