Reverse Mortgage Loan Amount Based on Three Factors
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.
The new limits in most parts of the country are $417,000. This is an increase by as much as two times in many of these same areas. So, what does this mean?
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.
Don't forget, the lender is using the house and it's equity as security for the mortgage. The value of the home, or the FHA insurable limit, is the first and most important determination as to how much a borrower can receive.
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.
The great fear is one day more will be owed than the home is worth. Clearly if the tables tell a mortgage company the borrower is going to live 4 years as opposed to 14, they will lend the older borrower far more than the younger.
Interest rates are thought of in a similar manner. The greater the interest rate, the quicker the accrual of interest will eat away at the security for the mortgage. Therefore, lenders lend more to prospective borrowers as rates go down than the vice versa.
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.
The new limits in most parts of the country are $417,000. This is an increase by as much as two times in many of these same areas. So, what does this mean?
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.
Don't forget, the lender is using the house and it's equity as security for the mortgage. The value of the home, or the FHA insurable limit, is the first and most important determination as to how much a borrower can receive.
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.
The great fear is one day more will be owed than the home is worth. Clearly if the tables tell a mortgage company the borrower is going to live 4 years as opposed to 14, they will lend the older borrower far more than the younger.
Interest rates are thought of in a similar manner. The greater the interest rate, the quicker the accrual of interest will eat away at the security for the mortgage. Therefore, lenders lend more to prospective borrowers as rates go down than the vice versa.
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.
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posted by Credit Counseling at
10:16 PM
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