Reverse Mortgage Guide

A reverse mortgage calculator factors in more and different values than a standard mortgage calculator. The Department of Housing and Urban Development (HUD) has taken an active interest in protecting consumers, especially seniors, from unscrupulous lenders that are out to steal homes or home equity. HUD currently insures ninety percent of all reverse mortgages and insists that all borrowers receive a consumer counseling session with one of their approved counselors before signing any loan documents.

As HUD says, generally the older you are, the more your home is worth and the lower the interest rate, the more you will be able to borrow. Some mortgages cost a lot more than others; it’s up to you to shop around just as you would with a standard mortgage.

But for the moment, the reverse mortgage calculator asks four simple questions.

• When were you born?

When was your spouse (or other co-owner) born?

• How much is your house worth (best guess)?

• What is your ZIP Code?

The prevailing rule on a reverse mortgage is that you cannot lose your home as long as you live. A reverse mortgage is not paid off until the borrower dies or decides to pay off the home and move. For that reason, the lender is more inclined to expect a return on the loan if the borrower is more advanced in age or if the home has substantial value. The reason for the ZIP question is that it will establish how big your reverse mortgage will be based on the FHA’s lending limits for that particular area. Generally, the amount available to you will be a figure based on the home’s appraised value and your age or the FHA’s cap for conforming loans in the area, whichever figure is less.

Reverse mortgages are not cheap. The closing costs can be substantial and the borrower will have to pay off any balance remaining on the original mortgage. Generally a borrower will pay off the original mortgage with a lump sum from the reverse mortgage. He/she may then opt to receive the balance of the loan in a lump sum; as a monthly stipend; or use the reverse mortgage as a credit line.

The reverse mortgage calculator will give you an educated guess for a gross amount. The net amount that will be available will be the gross less closing costs and any monies owed on the original mortgage. Payment on the mortgage is due upon the borrower’s death or when the home is sold and the borrower moves. However the amount owed on the loan cannot exceed the home’s value. That is the risk that falls to the reverse mortgage lender; that is why age and home value are part of the calculation.