It is easier to understand reverse mortgage if one knows what mortgage is. One gives his house as collateral and takes a loan. Then the borrower pays back the loan amount and the interest thereon in monthly installments till the entire principal and the interest are paid. When the entire amount and interest is paid back, the house becomes your own. The difference between the costs of the house and the loan on it is what is called home equity. In other words that is only the money that is your own. When the loan is fresh, the home equity is at its minimum and when the loan is fully paid up the home equity is at its maximum.
When the owner is aged, he wants some money, and he reverses the mortgages. The owner gives the house as collateral and takes money from a lending agency either as a lump sum, installments or a line of credit. This money is not returned. The loan is so structured such that the loan value will never exceed the house equity. The period of the loan is a fixed number of years, the owner being alive or uses the house as his principal residence. When he passes away, the lender will sell the house, and if any amount of the loan is remaining, it will be disbursed to his registered beneficiary. In case the owner outlives the loan, he will not have to pay more than the house value as per the Federal Trade Commission. This is the simplest form of reverse mortgage. There are various variations to this.
The Home Equity Conversion Mortgage or HECM is the most common and the only one insured by Federal Housing Administration, guaranteed by the US government and issued by private banks. There are no limitations on how the money is spent, on income or medical requirements. The only serious limitation is the limited money one can get is the lesser of FHA or $625,500.
The qualification requirements are the applicant be at least 62 years old, own the house outright or have low mortgage balance. He or she should hold title to the home and live in it as the principal residence, non-delinquent on any federal debt like income taxes, and loans. The person should be capable of timely and full payments for ongoing property charges like property taxes, insurance, etc., participate in a consumer information session offered free by a U.S. Department of Housing and Urban Development approved HFCM counselor. Often the lender would need a lien-free house or if any, be paid off from the proceeds. Besides the home be a single family home or a two to four units home, and at least one of the unit be occupied by the applicant, HUD-approved condominium project or townhouse, or a manufactured home that complies with FHA requirements.
There are numerous expenses based on complicated calculation based on various indexes before reverse mortgage loan is sanctioned. It is difficult for an ordinary individual to calculate these and arrive at the loan value exactly. Here the reverse mortgage calculator comes to use. These software-based devices do the complex calculations. These use indexes and interest rates commonly used by the industry to arrive at an estimated value of the money one may get. There are online platforms that do these estimates, and there are reverse mortgage companies who often offer a fee and obligation free estimate. The latter would be more accurate if the deal is processed by that company. There are various reverse mortgage calculators in the market. They differ in the information that one has to fill in as input and the rates and indexes they use in design.
The lending tree has a reverse mortgage calculator which is simple needing only a few input information like type of property, the nature of use of the property, Zip code of the locality, the age of the title holder, estimated house value (an error source), any mortgage balance. Click the calculate button after feeding in the required inputs to get the estimated reverse mortgage amount.
NRMLA is an association of reverse mortgage lenders and does not engage in the lending mortgage. The reversemortgage.org calculator is for estimating only, and many of the interest rates and indexes are commonly used in industry. Items like origination fee etc. are taken as the maximum permitted by HUD rules. The inputs required are ZIP code of the locality and find the locality. When were you born, when was your spouse born (leave blank if you are the lone owner). How much is your house worth, optional information mortgages and liens on the house, monthly payment on our mortgages, other upfront cash requirements, estimate any necessary home repairs and your desired line of credit are some of the other requirements.
These two reverse mortgage calculators represent two extreme types. Whatever device one uses, they give only an indicative value.
