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.
At $417,000 the new national loan limits, in most parts of the country, absolutely bury the old limits by more than twice the former amount. It's quite a boon, but how does this affect the average borrower?
One could liken the lending limit to the actual value of a home and as a starting point to determine how much money the lender will actually allow the senior to borrow. If the value of the home exceeds the lending limit ($417,000), the borrower receives no additional benefit.
Remember, the mortgage company uses the home's equity as the security for the loan. It will use the value or the maximum lending limit, whichever is less, as a starting point to determine how much they will allow the borrower to cash out at any given time.
Interest rates and age of the youngest senior who's name will be attached to mortgage are the other determing factors.
Age makes sense right? Let's face it, reverse mortgage lenders are using actuarial tables, just like insurance companies, to determine how long the borrower will live in the house.
Forward lenders today have the serious problem of more being owed than the home is actually worth. Reverse mortgage companies fear the exact same problem on the tail end of these mortgages. Therefore the borrower, who will likely pass on earlier rather than later, will be loaned more money.
Variances in interst rates plays a big role. Reverse mortgage companies lend more money when interest rates are low and less when rates are high. When rates are high the equity in the home is eaten up much quicker than when rates are low.
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.
At $417,000 the new national loan limits, in most parts of the country, absolutely bury the old limits by more than twice the former amount. It's quite a boon, but how does this affect the average borrower?
One could liken the lending limit to the actual value of a home and as a starting point to determine how much money the lender will actually allow the senior to borrow. If the value of the home exceeds the lending limit ($417,000), the borrower receives no additional benefit.
Remember, the mortgage company uses the home's equity as the security for the loan. It will use the value or the maximum lending limit, whichever is less, as a starting point to determine how much they will allow the borrower to cash out at any given time.
Interest rates and age of the youngest senior who's name will be attached to mortgage are the other determing factors.
Age makes sense right? Let's face it, reverse mortgage lenders are using actuarial tables, just like insurance companies, to determine how long the borrower will live in the house.
Forward lenders today have the serious problem of more being owed than the home is actually worth. Reverse mortgage companies fear the exact same problem on the tail end of these mortgages. Therefore the borrower, who will likely pass on earlier rather than later, will be loaned more money.
Variances in interst rates plays a big role. Reverse mortgage companies lend more money when interest rates are low and less when rates are high. When rates are high the equity in the home is eaten up much quicker than when rates are low.
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 Credit Counseling at
10:02 PM
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