How Do You Calculate a Reverse Mortgage?

As mortgage brokers in South Carolina, we often meet clients interested in learning more about reverse mortgages. This type of product has received a lot of traction as clients look for ways to tap into their home’s value in retirement. Learning about reverse mortgage calculations will prove beneficial in making decisions for your future. Whether it’s learning about a South Carolina FHA loan, reverse mortgage, or remortgaging, BrickWood Mortgage is here for you.

Reverse mortgage loans enable senior individuals, those 62 years or older, to use or tap their home’s value and receive it as cash without considering selling their homes or making monthly mortgage payments. If you are wondering, how do you calculate a reverse mortgage? The answer involves several factors and a specific formula, and we’ll get to this later. 

Why More People Are Choosing a Reverse Mortgage

Reverse mortgages have become increasingly popular in South Carolina among senior citizens. This is because property owners feel that their income is stretched while they have valuable property that has accumulated a lot of value over the years (or acquired while purchasing).

We have noted that clients often use reverse mortgages as an income supplement in retirement, to pay healthcare costs, or to make home improvements. This is because a reverse mortgage is unique in that it does not require monthly payments, thus alleviating a substantial burden of payments that many seniors face.

This flexibility is attractive to homeowners who wish to continue residing in their property while at the same time leveraging the value that they have created through mortgage payments.

Calculating a Reverse Mortgage

The process of calculating a reverse mortgage entails a number of key elements that intersect to compute your reverse mortgage amount. Lenders apply a formula known as the principal limit, which is your reverse mortgage maximum possible value.

Age & Life Expectancy

Your age is the most crucial factor that determines how much you will get as a loan. Generally, as your age increases, so will your borrowing capabilities. In the case of married couples, lenders will take into account the younger individual’s age.

Home Value and Lending Limits

When helping you, we determine your home’s current market value through an appraiser’s assessment. Nevertheless, in calculating a reverse mortgage, we base it upon a maximum allowed value as determined by the Federal Housing Administration’s lending limits within your region. This means that if your home is worth above that value, we will just base it upon that highest allowable value.

Interest Rates

The current interest rates also have a direct effect on your calculation of a loan. We’ll utilize the current interest rates to calculate a reverse mortgage and the total amount that is repayable over a period of time, thus determining your initial ability to secure a loan based on higher or lower rates.

Main Limiting Factor

The government offers you tables that calculate your age, your home value, as well as your interest rates, to derive your principal limit factor. Lenders multiply your home’s value (within the lending limit) by your principal limit factor to derive your gross principal limit.

Upfront Costs

Lenders then deduct your mandatory fees from your gross principal amount to get your net principal amount. Mandatory fees include origination fees, mortgage insurance premiums, and closing fees. This is essentially how much you get to use in a reverse mortgage.

Working with a Broker

While reverse mortgage calculations are complex in nature and need expertise, we assist South Carolina residents in understanding such complex calculations to see if a reverse mortgage option is suitable for them.

Our work is more than just calculating figures. We analyze your particular circumstances, outline all possible terms, and make you aware of all implications of your options. We assist in comparing offers from different lenders as well as evaluating various types of loans in order to identify the most beneficial one.

When you work with a seasoned real estate broker like BrickWood Mortgage, you get an individual acting in your best interests while completing all of your calculations in an honest manner.

Making an Informed Decision

Reverse mortgage calculations consist of several variables that greatly affect your mortgage value as well as your current and future security. Your age, market value of your home, rate of interest, and fees, all make a unique calculation for you.

We recommend that South Carolina residents consult with a professional of their choosing in order to get a better understanding of their individual situation. This will empower you to make informed decisions regarding your home’s equity and help answer any questions you might have. How do you calculate a reverse mortgage? You now have a better idea!