Breaking Down Reverse Mortgage Cash Out to Borrower
As of last month the new law went into effect allowing reverse mortgage companies to loan based upon the new higher FHA reverse mortgage limits.
The new limits in most parts of the country are $417,000. This is an increase by as much as two times in many of these same areas. So, what does this mean?
Of the multiple factors entering the equation determining the value of the home, or the FHA insuraable loan limit, is of vital concern as the reverse mortgage lender uses this dollar figure and related equity as security for the mortgage.
Don't forget, the lender is using the house and it's equity as security for the mortgage. The value of the home, or the FHA insurable limit, is the first and most important determination as to how much a borrower can receive.
Two other important factors go into this determination: Interest rate and the youngest borrower's age.
It probably comes as no surprise but reverse mortgage companies use actuarial tables. Yes, it may seem cruel but knowing how long the borrower is going live helps them determine the dollar figure to lend. Age is the next most important factor.
The great fear is one day more will be owed than the home is worth. Clearly if the tables tell a mortgage company the borrower is going to live 4 years as opposed to 14, they will lend the older borrower far more than the younger.
Interest rates are thought of in a similar manner. The greater the interest rate, the quicker the accrual of interest will eat away at the security for the mortgage. Therefore, lenders lend more to prospective borrowers as rates go down than the vice versa.
People often say to me, "What percentage of my value am I going to get?" There is no percentage. All three variables need to be input into the formula and out will come the number.
For a rough guestimate, borrowers aged 90, would receive roughly seventy-five percent of the home's value or loan limits (the lesser of the two). The young sixty two year old would qualify at about fifty percent.
The new limits in most parts of the country are $417,000. This is an increase by as much as two times in many of these same areas. So, what does this mean?
Of the multiple factors entering the equation determining the value of the home, or the FHA insuraable loan limit, is of vital concern as the reverse mortgage lender uses this dollar figure and related equity as security for the mortgage.
Don't forget, the lender is using the house and it's equity as security for the mortgage. The value of the home, or the FHA insurable limit, is the first and most important determination as to how much a borrower can receive.
Two other important factors go into this determination: Interest rate and the youngest borrower's age.
It probably comes as no surprise but reverse mortgage companies use actuarial tables. Yes, it may seem cruel but knowing how long the borrower is going live helps them determine the dollar figure to lend. Age is the next most important factor.
The great fear is one day more will be owed than the home is worth. Clearly if the tables tell a mortgage company the borrower is going to live 4 years as opposed to 14, they will lend the older borrower far more than the younger.
Interest rates are thought of in a similar manner. The greater the interest rate, the quicker the accrual of interest will eat away at the security for the mortgage. Therefore, lenders lend more to prospective borrowers as rates go down than the vice versa.
People often say to me, "What percentage of my value am I going to get?" There is no percentage. All three variables need to be input into the formula and out will come the number.
For a rough guestimate, borrowers aged 90, would receive roughly seventy-five percent of the home's value or loan limits (the lesser of the two). The young sixty two year old would qualify at about fifty percent.
About the Author:
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posted by Debt Consolidation Loan at
10:20 PM
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