How a Reverse Mortgage Calculator works
A senior homeowner’s biggest question is how much money can they get with a reverse mortgage? First, let’s talk about how this amount is determined. For most reverse mortgages, they are regulated by the Federal Housing Administration (FHA). The formula comprises of:
- the age of the youngest borrower,
- the value of the home less what is owed, and
- the interest rate.
Here are a few examples.
Eliminate Mandatory Mortgage Payment
First off, let’s say Fred is 64 and Wilma is 62, we will use Wilma’s age of 62. The value of the home is $400,000 and they owe $150,000. The interest rate is 3%. They have enough equity to eliminate their mandatory, monthly mortgage payment and the closing costs are rolled into the loan.
Rightsizing
Next, George & Judy are both 75 and want to ‘rightsize’ their home. Joe is tired of mowing the yard and snow removal and Judy doesn’t want to clean her big house any longer. George finds it difficult to go up and down the stairs and Judy is excited about maintenance-free living. They want to buy a patio home priced at $350,000. They only need to put down $160,000 at 3% interest and they will not have a mandatory, monthly mortgage payment. This amount includes the down payment and closing costs.
Reverse Mortgage Calculator to Access Equity
Our final example is Fred and Ethel, he is 72 and she is 70. So, we use Ethel’s age of 70. Their home is worth $500,000 and they own it free and clear. The interest rate is 3%. They would unlock access to their home equity of $270,286, of which they could receive $138,273 in a lump sum or monthly installments of $1244 or a line of credit of $270,286 that earns compound interest between 3-5% each year despite any real estate market downturns. Most people earn 0% on their home equity. When they draw on the money it is not taxed.
With each of these reverse mortgage calculation examples, the borrower remains an owner on title, the responsibility for repayment shifts from the borrower to the home, as FHA reverse mortgages are non-recourse loans. These are hypothetical examples and is not tax, legal, or financial advice. Not everyone will qualify. To find out if this program might be a good fit for your situation, give me a call. My direct line is 719-302-5820.
