CEO of All Reverse Mortgage Inc. and has 40 years of experience in the mortgage banking industry.
getty
If you’re a senior and thinking of tapping into the equity you’ve built up in your home by taking out a reverse mortgage loan, then you likely have a lot of questions, especially if you’re entertaining this idea for the first time. It is only natural, considering that reverse mortgages are complex financial products that also present a lot of potential for seniors who are looking to enhance their cash flow. The most common reverse mortgage program, the HUD Equity Conversion Mortgage (HECM, pronounced “heck-um”) requires borrowers to be a minimum of 62 years of age, but there are also proprietary or jumbo private programs that now offer borrowers 60 years of age and over reverse mortgage opportunities as well.
Some of the biggest questions you likely have are, “How much money can I access?” and “Will the reverse mortgage replace my existing home loan(s) or add another one?” A reverse mortgage calculator is designed to provide you with that information and, while the use of a calculator typically will not be able to pinpoint your exact terms because things like value, credit and other variables are unknown at the time of calculation, you can get a very good idea of what you might expect to receive with the loan. And if you are comparing lenders, as long as you use the same terms for each lender, your comparisons will be helpful even if the final terms change, because the changes would occur with both lenders.
How do reverse mortgage calculators work?
Typically speaking, a reverse mortgage calculator works by taking basic information about you and your home — including your ZIP code, your age and that of any other borrower on the loan (spouse or other co-owner living in the home and on the loan), current interest rates, the value of your home and your current outstanding forward mortgage balance — and it provides a look at the kind of money you would receive after paying off any current loans on the property if you were to close a reverse mortgage.
Not all calculators are created equal. Some use national estimates for closing costs that do not take into consideration local differences for title and recording fees, which can be substantial in states like Florida. The calculator needs to consider all information, as, for instance, an eligible non-borrowing spouse’s age is considered in the calculation of the available proceeds.
After inputting all the requested information, the calculator will then supply what your loan proceeds would be based on the information given and some will also offer looks at how different proceed payments could be structured. This can give you an idea of how a lump sum could be paid out, how much cash you can keep in a standby line of credit or what the monthly disbursements of your proceeds might be.
A reverse mortgage calculator can be a very helpful tool for a potential reverse mortgage borrower, offering more information about what a reverse loan could look like, but remember that it’s not an entirely concrete indicator of how your loan will be structured if you proceed given the fact that your credit, value and possible future rate changes could affect these numbers.
• Reverse mortgage calculators work by gathering information about you and your property: Your age, your spouse’s age, whether or not you have a non-borrowing spouse, the estimated value of your home and the current outstanding forward mortgage balance.
• Some calculators ask for additional info, such as the annual mortgage insurance rate, the age of a non-borrowing spouse, the expected interest rate and estimated closing costs. This will only help if you already know this information.
• The calculator will then supply the numbers for your reverse mortgage based on your input, how much money you can get and what your different payment options could look like from a lump sum, line of credit, monthly disbursement or some combination of these.
What you can expect to find searching for a calculator?
It is easy to find a reverse mortgage calculator through a simple internet search, but different calculators can offer you different levels of information and details. If you already have a lender picked out, for instance, you may be able to use a calculator on the lender’s own website. If you want to try and find a non-lender-specific calculator, you can also use the one found at ReverseMortgage.org, which is administered by the National Reverse Mortgage Lenders Association (NRMLA). There is also the lender-specific offering by my company, the All Reverse Loan Optimizer (ARLO), which gives real-time numbers for accurate rates and fees throughout the nation.
When finding a reverse mortgage calculator to use, be sure the calculator meets your needs and remember, the numbers are for comparison only. Individual circumstances of your loan may affect the amounts that a calculator will display for you, and when you choose to move ahead with a reverse mortgage your loan originator will help guide you through those individual circumstances as the loan progresses through to closing.
When should you use a reverse mortgage calculator?
Many prospective borrowers will begin their reverse mortgage research by using an online calculator. This is a great way to begin as it gives you a general sense of how a reverse mortgage may help achieve your financial goals prior to talking with a lender about specifics of the loan programs available. And if you do use lender specific sites, you can save the results to comparison shop between multiple lenders — and it always pays to compare.
Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?
