It may help you to first understand how the Reverse Mortgage calculations are done:
On Nov. 6, 2008 the Department of Housing and Urban Development (HUD) increased the loan limit on the Home Equity Conversion Mortgage (HECM) to $417,000 in almost all areas of the country. Later, the Economic Stimulus Bill passed by Congress in early 2009 increased the loan limit to $625,500. The $625,500 loan limit is in effect until Dec. 31, 2010 unless further extended.
The increases were designed to help seniors access more of their home equity to fund retirement expenses during the economic crisis.
Please note that the HECM is the only Reverse Mortgage loan program currently widely available. The HECM is a product regulated and insured by the federal government and is offered by approved lenders like Financial Freedom, Wells Fargo and many others. There will likely be little difference in the maximum origination and closing cost fees charged by each lender.
You have options for how you wish to receive the available money from your home – cash, monthly income, a line of credit, or any combination of these payouts.
Cash is cash – nothing tricky about it. A Reverse Mortgage enables eligible home owners to take out cash, in a lump sum, from their home equity. This cash can be used for ANY purpose. Although you make no payments, interest charges accrue to the total loan amount every month you carry the Reverse Mortgage. Therefore, total size of your loan will increase over time, though the total amount owed can never exceed the value of your home.
Opting to receive monthly income from a Reverse Mortgage is similar to purchasing an annuity.
You can usually opt for "Tenure" or lifetime option for the monthly income. However, some lenders can also offer "term" options. A term option means that you will receive monthly income for a predetermined amount of time. With the term option you would likely receive a higher sum of money each month than you would receive with a lifetime or tenure option. To determine what income you could receive with a term option, contact a lender.
Be advised that you cannot take the money from a Fixed-rate reverse mortgage in a monthly payment.
A credit line is money that you have available for use on anything at anytime. A credit line differs from cash in that you only accrue interest charges on the money that you use, not on the amount available to you.
For example, if you had $50,000 available to you with the cash option on a Reverse Mortgage, you will have $50,000 available to you as a line of credit. The difference is that if you only wanted to spend $10,000 during the first year of your reverse mortgage, you would only accrue interest on the $10,000, not on the $50,000 available to you. The total loan would grow more slowly than a lump sum option. In addition, the credit balance available will increase monthly for the life of the loan.
A credit line is the most popular and in most cases the most cost efficient option for receiving a Reverse Mortgage loan because you choose how much money to take and when you want it. Interest is only paid on the costs of the loan and the amount you’ve taken out while the balance available continues to grow.
You cannot establish a line of credit on a Fixed-rate reverse mortgage.
You can choose to combine the types of payouts on your Reverse Mortgage to meet your unique needs and efficiently use your funds. For example, you could receive half cash, a quarter monthly income and a quarter of the money in a line of credit.
A Reverse Mortgage lender could help you design a program to meet your unique needs.
For an official estimate, contact a Reverse Mortgage lender by completing our information request form.
Still have questions about the Reverse Mortgage calculator? Call us at 866-441-0246.
