How Much Money Can Be Borrowed in a Reverse Mortgage
In general, the more your home is worth, the older you are and the lower the interest rate, the more you'll be able to borrow. But there are certain limitations both on the home value and on the interest rate.
The system will look first at your home value. If it is more than the FHA limit, it will start at the limit. If it is below the limit, it will start with the home value. Then it will take into consideration the age of the youngest borrower and the current interest rate. However there is a 'floor' to the rate that is considered. As of 10/4/2010, the floor was reduced from 5.5% to 5.0%. If the rate is below 5.0% the calculator will use 5.0%.
(Update as of 10/4/10) FHA Reverse Mortgages were nearly the same from year to year for nearly twenty years. Your choice was an adjustable rate (adjusting monthly) or an adjustable rate (adjusting annually). In the past couple years HUD has made a number of changes to FHA Reverse Mortgages as have lenders. As of 10/4/2010 what is called a HECM Saver was added. So while we have two basic reverse mortgage types, both have the choice of adjustable rate or fixed rated. That is four major choices with additional minor varations. So now we have:
- HECM Original (I made up that name) Adjustable Rate
- HECM Original Fixed Rate
- HECM Saver (HUD made up that name) Adjustable Rate
- HECM Saver Fixed Rate
The only difference between the HECM Original and the HECM Saver is how much they cost up front, how much over time and how much money you qualify for. All other guidelines you've read about on this site apply.
The HECM original has a graduated Origination Fee with a maximum of $6,000. The MIP is 2%. The Other Costs (what I call third party fees) will vary depending on what the third parties (appraiser, escrow companies, county recorder, etc) charge. The Annual MIP is 1.25%.
The HECM Saver has a graduated Origination Fee identical to the HECM Original. The MIP is 0.01% (a MAJOR difference). The Other Costs are pretty much the same. The Annual MIP is 1.25%. The Principal Limit is less (you get less money, all other things being equal). In very round figures the lower amount is about 20% less with the Saver than the Original.
So recapping, the Saver provides very roughly 80% of what the original does with a significantly lower MIP up front (the Original maxed at $12,510 while the saver maxes at just under $63).
In addition, lenders may now be charging less than they are allowed. Currently with the fixed rate choice, they get more money when they sell to the investors so they are currently passing some of that on (in hopes of generating more loans) by reducing some of the up front or ongoing (such as monthly payment) fees.
Use my calculator to give you a quick picture of how much money you can get.
To avoid the detail and get to the bottom line, move your eyes down to the 3rd group of numbers. The 'Net Available Principle Limit' is how much you get after fees and paying off your mortgage(s). If it has a minus number in front of it, it means you owe that much more than is available to you.
Would you like to receive a detailed quote on how much money you could receive in a Reverse Mortgage. Please use my Quote Request Form
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