How Reverse Mortgage Math Works

Three Main Factors Explain the Basics

Your Age & Your Property Value
When You Want Your Money
Cost to Borrow

1. Your Age & Your Property Value

Property Value:

The more your property is worth--subtracting your exisiting mortgage balance and subtracting any repair costs--the more cash you can receive.

Take a look at this example of a $400,000 home:

$400,000	Appraised property value. This is critical since you are borrowing against the property's value. The appraised value is what your lender actually appraises and underwrites (believes) your property is worth. For federally insured reverse mortgages there is also the county lending limit to consider (the highest limit is currently $362,790).
-$40,000	Subtract existing mortgage balance which must be paid off before you get a reverse mortgage.
-$10,000	Subtract the cost of any required repairs (those that affect health and safety).

$350,000	Maximum amount available to borrow. There are basically two different broad varieties of reverse mortgages, with two different maximum amounts that you can borrow. One, U.S. Government federally insured reverse mortgages through the Department of Housing and Urban Development (HUD), Federal Housing Administration (FHA). These FHA reverse mortgages have lending limits that are currently set at the county level; the maximum amount that you can borrow through this variety of a reverse mortgage is $362,790. The law annotation is FHA 203(b) and since the lending limit, or maximum amount you can borrow, is set at the county level, your amount could be lower depending upon property values and trends in your county. The lowest lending limit is $200,160, typically in rural areas. A similar reverse mortgage is offered by Fannie Mae, a U.S. Gov't sponsored lending agency that has a higher reverse mortgage lending limit of $417,000 for 2007. Second, many other lenders and banks offer their own reverse mortgages that let you borrow against your appraised home value above and beyond the maximum FHA 203(b) limit of $362,790. As a result, the amount of money that you could borrow with this kind of reverse mortgage is generally substantially greater than with the FHA/HUD option or Fannie Mae. It is very important to be aware of the costs and fees with this variety of reverse mortgages, which tend to be greater. We'll explain the fine print in full detail to you at 1-800-4MONEY4.

Impact of Your Age:

The older you are and the more your home is appraised for, the more cash you can get. (Remembering, less your existing mortgage and repairs)

You must be at least 62, but look at this example of a HUD reverse mortgage of $350,000 to see the impact of age. The HUD/FHA amortization table basically subtracts your current age, from 100 years, and divides the maximum loan amount by your expected life span. The other reverse lenders also factor your age in the same way, although each one has a slightly different forecast of your expected life span.

An appraised home value of $350,000:

Age	Amount You Can Borrow
70	$197,000
80	$236,000
90	$273,000

2. When You Want Your Money

Lump Sum Now

and/or Monthly Amounts

and/or Credit Line

The basic rule of borrowing applies to reverse mortgages:

The more money you borrow (even if it's from your own property), and the longer you borrow it for...the more interest you will owe.

Interest on $50k taken as a lump sum, and repaid in 10 years would be: $40,969.

Interest on $50k taken in monthly amounts for 10 years would be: $18,283.

* At an interest rate of 6%

And the Length of Your Reverse Mortgage

The length of time that you'd like to have your loan will also affect the amount you receive; here are the two choices:

A set number of years, called "term"

You must repay the reverse at the end of the specified number of years.
It's good if you know how long you'd like to stay in your home.
Allows you to get more cash.

An estimated number of years, called "tenure"

Tenure payments:

Based upon your current age, less 100 years
Less than "term" because the money you receive must stretch out over your forecasted life expectancy
Continue for as long as you remain in your home

3. Cost to Borrow

Your Total Annual Loan Cost (TALC) as defined by the US Federal Government Regulation Z, is the single rate that includes all the loan costs. We use it to compare reverse mortgage options (call us for a comparison).
Your interest rate adjusts monthly or annually, your choice. Unlike refinance or home equity loans, your rate is not based on your credit, loan amount or negotiating skills--it is based Upon Treasury Dep't Ten Year T-Bill, published weekly in the Wall Street Journal.
"Non-Recourse" insurance -- Even if a catastrophe strikes and the value of the home is reduced, you or your estate can never owe more than the current market value of the home.

Putting it All Together

These factors determine what kind of loan and how much money we can offer you. If you call us for a consultation we can also discuss other factors such as your lifestyle, budget, and personal financial goals. To get more information, check out "Compared to Other Loans" and "The Reverse Mortgage Cash Calculator".

Call us anytime: 1-800-4-MONEY-4.

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