What You Need to Know About Reverse Mortgage Calculators
Using a reverse mortgage calculator is easy and important research for potential reverse mortgage borrowers — but there are a few things to watch out for.
Reverse mortgages, also called Home Equity Conversion Mortgages (HECM), are loans that are extremely popular with people 62 years and older. When you get a reverse mortgage, you are borrowing against your home equity. However, unlike traditional home equity loans, you do not have to pay back the money borrowed as long as you are living in the home.
Reverse mortgage calculators can be one of the quickest ways to learn about these loans and how they will impact your life. However, there are advantages and disadvantages to using these tools.
Here are a few of the pros and cons of reverse mortgage calculators:
Pro: Quick Estimate of Your Loan Amount and Whether or Not You Qualify
When you use a reverse mortgage calculator, you put in information about the value of your home, your age and how much you still owe on your existing mortgage — if anything. Then, depending on the calculator, the system will give you some kind of estimate about your loan proceeds. The NewRetirement reverse mortgage calculator tells you:
- If you are eligible for the loan — do you qualify
- The value of your loan proceeds — the total money you are eligible to receive
- How much of you loan proceeds will be used to pay off your existing mortgage — this is a requirement of a reverse mortgage loan
- How much money you have available — to be taken in cash or a home equity line of credit
- The amount of home equity you will still have in reserve — you can only borrow a portion of your equity, not all of it
- How much a line of credit would grow over a 10 year time period — if you do not spend your money and you keep it in a home equity line of credit, then the available money grows — making this a really interesting back up plan
Con: Estimates Might Not Be Accurate
While most calculators use the right formulas and are fairly accurate, it can be easy to get misleading reverse mortgage estimates.
Consider the following factors:
Your Inputs Might Not Be Accurate: You probably know exactly what you owe on your home. You certainly know how old you are.
However, do you really know exactly how much your home is worth right now? Getting this number wrong, can impact your estimate and even whether or not you qualify.
Interest Rates: Most calculators try to keep interest rates for the reverse mortgages accurate and current. However, these rates change frequently. In fact, many experts predict that interest rates will rise in the near future. So, if you get an estimate this month and wait to get the loan next month, you might not qualify for as much money if interest rates do in fact go up.
Furthermore, different lenders may offer you different interest rates — which can have a significant impact on your overall loan.
Counseling Sessions: To secure a reverse mortgage, you must go through a federally mandated counseling session and a financial assessment. These sessions attempt to make sure that you understand the loan and assess whether or not the mortgage is a good long term fit for your financial situation. So, while the reverse mortgage calculator may suggest that you qualify, that may not always be the case.
Housing Type: Some reverse mortgage calculators, including the NewRetirement version, require that you enter housing type. This is important because not all types of homes are eligible for the loan. The rules about what kind of home qualifies can be confusing and have changed over the years. And, not all reverse mortgage lenders allow the same types of homes.
Pro: Some Tools Help Assess if the Loan is a Good Idea for You or Not
Most reverse mortgage calculators will give you an estimate. However, NewRetirement also has a tool that helps you assess whether or not a reverse mortgage is right for you. The reverse mortgage suitability quiz helps you assess the loan in terms of your:
- Need for supplemental income or improved cash flow from eliminating mortgage payments.
- Desire for financial independence
- Ability to stay in your existing home for the long term
- Financial values and attitudes toward loans
- Interest in maximizing your estate for heirs
The Reverse Mortgage Suitability Test takes you through five questions and assesses whether the loan is something you should consider or not.
Reverse mortgages can be great for many people but is it right for you? The reverse mortgage suitability test gives you an overall grade about whether or not a reverse mortgage is something you should consider. You also get personalized commentary on various aspects of the loan and how they will impact your retirement.
Con: Not All Reverse Mortgage Calculators Include Information on Fees
Like most loans, there are fees associated with reverse mortgages.
It is important to make sure you understand the various fees — and it is also important to talk with different lenders and compare both fees and interest rates. By talking with multiple lenders, you may be able to save money and/or get a better loan. NewRetirement can connect you to various prescreened lenders.
Cons: No Human Contact
Reverse mortgage calculators are quick and easy and mostly pretty accurate. They are a great way to get started researching these loans. However, there is nothing like talking with someone and being able to ask questions and follow up with additional questions.
Technology has changed our lives in so many ways but nothing will ever replace being able to really talk with someone. Want questions answered?
Give us a call at 1-866-441-0246.