radius financial group | Mortgage Blog

How Is a Reverse Mortgage Calculated?

Written by radius financial group | Jan 10, 2023 1:15:00 PM

Taking out a reverse mortgage can provide a significant amount of financial freedom for those who have the right lifestyle and financial situation. However, for those who do not have the right conditions in place, a reverse mortgage can come with a number of potential drawbacks.

If you’re currently considering a reverse mortgage, having solid numbers in front of you to help guide your decision is a good idea. Luckily, you can gain an estimate of the amount you could receive from a reverse mortgage (either through a lump sum or payment plan) by calculating your current assets. 

Reverse mortgage calculation can be complex. It only offers an estimate, not a guaranteed number. But it still serves as a helpful piece of information as you continue to research and determine whether a reverse mortgage is right for you.

 

 

How Does a Reverse Mortgage Work?

Reverse mortgages are popular options for older adults who seek access to the equity they’ve built into their homes. As you draw on a portion of the equity in your home to supplement your income, you aren’t required to make monthly payments on the home or pay interest until you pay back the entirety of the loan after you have moved out or a maturity event occurs.

To meet the requirements of a reverse mortgage, you must:

  • Be at least 62 years old 
  • Must not currently have any delinquent federal debt 
  • Own your home outright or have 60 percent equity or more 
  • Participate in reverse mortgage counseling 
  • Use the home securing the loan as your primary residence

If you meet the requirements to qualify for a reverse mortgage, you can move on to calculating your reverse mortgage.

 

What’s the Point of Reverse Mortgage Calculation?

The primary benefits of a reverse mortgage calculation are the insights into two important questions:

  • How much money will the reverse mortgage provide?
  • Will the reverse mortgage replace an existing mortgage?

The answer to the first question depends on a number of factors, including the value of your property and the amount of equity you currently have in the home. This will only provide a ballpark estimate, not a guaranteed number.

For the second question, the answer is yes, a reverse mortgage replaces the existing mortgage on the home.

Keep in mind that a reverse mortgage calculator can provide useful information, but it won’t be able to pinpoint exact information because certain factors, such as the value of the home and interest rate, are estimates at the time of calculation. In other words, it can provide an estimate, but it’s best to speak with a loan officer for a more concrete answer.

Reverse Mortgage Calculation

When you sit down with a loan officer, you will be asked to provide the following information to calculate your reverse mortgage:

  • Age. This includes your age and your spouse's age, even if your spouse is not on the loan.
  • Home value. You can gain an estimate of your home’s value based on the results of a real estate agent’s appraisal or by checking the value of homes in your area.
  • Property use. Your home needs to be in good condition because it serves as collateral on the loan. In most situations, homeowners use the funds from selling their home to pay back the reverse mortgage loan.
  • Type of property. Serving as your primary residence, your property must be a house, an FHA approved condominium, a townhouse, or a multi-wide manufactured home built on or after June 15, 1976, to be eligible.
  • Mortgage balance. You must have at least 60 percent equity in your home to qualify. 


Determining Payment from a Reverse Mortgage 

When your information has been calculated, you will have a list of potential proceed payment structures for how you will be paid. The selection is up to you:

  • Line of credit. This option has an adjustable interest rate and allows you to borrow money whenever you would like to receive a withdrawal, while saving any additional credit line for future use.
  • Monthly payout. This option also has an adjustable interest rate. You can receive fixed monthly payments for a set number of months (term) or for the life of the loan (tenure).  
  • Lump sum. This is a fixed-interest-rate option that provides you with the entire amount of money in a single payment.  
With some reverse mortgages, such as home equity conversion mortgages, an adjustable-rate mortgage option allows the borrower to choose from any of the disbursement options, including a combination of the three. The fixed rate mortgage option only allows for a lump sum payment at closing.

 

What Is a Reverse Mortgage Calculator? 

You might have heard of a reverse mortgage calculator or even come across one during your online research. Although most calculators request the information mentioned above, some will ask for additional information, such as the annual mortgage insurance rate, expected interest rate, and expected closing costs.

Mortgage calculators can also be helpful but limited compared to working with a professional loan officer. 

 

Connect with a Loan Officer from radius 

A reverse mortgage calculator will only bring you so far. In some cases, it might even provide an accurate assessment of the amount you can receive from a reverse mortgage.

By working with a loan officer from radius, you’ll be in good hands with someone who can help find an accurate estimate based on your current financial assets and lifestyle to determine if a reverse mortgage is the right choice for you.

Interested in learning more about reverse mortgages? Connect with a loan officer today. 

* This guide is for educational purposes only and should not be construed as financial advice. These materials are not from HUD or FHA and were not approved by HUD or a government agency. Not tax advice, consult a tax professional. The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and insurance. The borrower must maintain the home. When the last borrower or eligible non-borrowing spouse passes away, sells the home, permanently moves out, or fails to comply with the loan terms, the loan becomes due and payable (and the property may become subject to foreclosure). Reverse mortgages are currently not available in NH and TN with radius financial group, inc.