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What you need to know about reveverse mortgage calculation

A reverse mortgage is similar to home equity loan exclusively for seniors over 62 years and above. It is also known as conversion mortgage or HECM. Unlike home equity loans where you have to make monthly repayments, the reverse mortgage is directly opposite the lenders who make monthly payments to the borrower. The borrower need not make monthly mortgage repayments as the loan is repaid after the borrower vacates from the house or after his demise. When none of the loan plans work out, a reverse mortgage is mostly the last resort source of yield to consider. However, it is a great tool for homeowners to earn some cash out of their home equity.

Reverse mortgage calculation was first insured by federal housing administration in 1989. After which the seniors above 62 years or older were able to access a part of their home equity. The basic intention of the reverse mortgage calculator is to help retirees with poor income and rich assets, use their private wealth in their homes to cover day to day expenses and for medical care. Howbeit there are no restrictions on how the money is used.

How much money can you get from the reverse mortgage?
The amount you receive from reverse mortgage varies significantly for every homeowner depending on the value of assets. The easy and fast technique to estimate your reverse mortgage loan amount is by using the lender’s reverse mortgage calculator. Before you begin to calculate your reverse mortgage amount it is necessary to understand how reverse mortgage calculation is done.

The HECM reverse mortgage calculator plans yield different amounts comparing to the ordinary reverse mortgage. The actual reverse mortgage loan amount is calculated on the basis of the home or asset value, available HECM reverse mortgage loans, current interest rates, outstanding loans against your home and the borrower’s age.

However, if you have too many assets, you cannot borrow a large amount of money more than the limitation. The federal government has set laws for maximum loan amount to be sanctioned to their customers. The maximum limit on HECM reverse mortgages is $636,150, up from $625,500, as per 2017. The lending company is liable to pay more than the half of the amount worth the value of the home. For example, if you own a home worth $400,000 with $75,000 left to pay an existing loan, you might be qualified for a reverse mortgage loan of around $200,000. However, you cannot straight away collect the amount in a single transaction; you may have to settle down the existing reverse mortgage loan of $75,000. This way the new lender gives you an opportunity to eliminate the substantial ongoing monthly loan payments to boost your cash flow. You can estimate your reverse mortgage amount using the reverse mortgage calculator online provided by your lending company.

A reverse mortgage calculator is simple to use; you need to type in the details of the asset you wish to obtain a reverse mortgage on, usage of the asset, age, zip code, the value of the asset and details on existing mortgages. This will give you a rough estimation of your qualified reverse mortgage.

The reason why the loan amount is lesser than the asset value:
When you calculate your reverse mortgage amount, it will always be lesser than you think it should be due to two major reasons.

  • Holding back homeownership
    Even when you receive the reverse mortgage amount, you remain the owner of the home. To hold back the ownership, you need to retain some portion of the accumulated home equity stake. If you want to get the full value of the home, it is more or less like selling off your home to the lender. This not advisable in most of the cases when you can still have the chances to receive a good reverse mortgage amount monthly. Retaining the equity gives you the power of ownership in the future and avoids many risks. This choice of reverse pays ways to access additional options such as relocation, downsize or possibly give some properties to heirs.
  • Cut down existing mortgage
    Another reason for your reduced reverse mortgage amount is your existing mortgage. The reverse mortgage program could be the only chance for a loan on your home. If you are still paying off your previous debts, you could use a part of the reverse mortgage money to settle them off.

Types of reverse mortgage programs:

  • HECM fixed rate reverse mortgage
    If you want to secure your reverse mortgage amount with the fixed interest rate, you must first pay off any existing mortgages using the loan yield and or be taken as upfront money.
  • HECM adjustable rate reverse mortgage
    Similar to fixed rate reverse mortgage it helps to pay off existing mortgages and or you may use all remaining earnings as a channel of credit or as annualized monthly payment. The benefit of a channel of credit is that you only pay interest on the amount you withdraw not for the complete amount you are eligible for.
  • HECM for purchase
    HECM is unlike other reverse mortgage programs mentioned above. Others let you take a loan on your existing home. Whereas, HECM enables you to use the reverse mortgage for buying a new home.
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