All Reverse Mortgage has developed the first ever reverse mortgage amortization calculator that lets you change future interest rate, appreciation rates and payment assumptions. (Download your copy here!)
Purpose of the Reverse Mortgage Amortization Calculator
Have you ever wondered about how a reverse mortgage loan could be more advantageous than a traditional loan?
Are you someone who thinks Reverse Mortgage loans are only for those in dire straits?
Think that if you get a Reverse Mortgage loan that you will have no equity in your home for the rest of your life?
I have some news for you that will make you reconsider that position and see how a Reverse Mortgage loan could be more beneficial to you than a Conventional or Standard loan.
One feature of the Reverse Mortgage loan that is not as well-known as it should be is that Reverse Mortgage loans have no prepayment penalties and homeowners can make payments on these loans.
That is right, you can take out a Reverse Mortgage loan that requires no monthly payments, but still make payments on the loan in order to lower the balance for the future or pay it off over a set period.
Since Reverse Mortgage loans do not require a payment in full in order to satisfy the loan or bring down the balance, homeowners can opt to make partial repayments to the loan in a number of different ways.
Some people have decided that they were going to pay just enough per month in order to keep the balance the same as the amount that was borrowed at closing and others decide that they wish to pay more as they eventually want to pay the loan off.
Now one might ask:
“Why would I get a Reverse Mortgage loan if I am just going to make payments?”
There are many reasons why people across the country are going this route.
Reverse Mortgage loans are much easier to qualify for than Conventional loans as it pertains to income and credit requirements.
Those on a fixed income or those who cannot verify their income in the traditional sense may not qualify for a Conventional loan.
However, since the guidelines on Reverse Mortgages currently do not require any income requirements and the credit guidelines are very minimal, it is easier to qualify for this product.
More Borrowers Making Interest Repayments
However, in my opinion the best reason why this is a more attractive option is because you are not required to make monthly payments on a Reverse Mortgage.
Since there is no requirement of a payment, you can decide how much you would like to pay on a monthly basis and if a month were to come along where you could not afford to pay as much as you normally would, you could forego making a payment altogether.
This is a huge advantage over getting a traditional loan.
If you could not make your full scheduled monthly payment on your traditional loan, your lender would consider you late and then it would ultimately affect your credit rating and if you could not catch up could lead to a foreclosure on the property.
Consider the Upfront Costs
The other knock about going the route of the Reverse Mortgage over the Conventional loan in some people’s opinions is that Reverse Mortgages are too expensive.
The only reason why Reverse Mortgage loans were more expensive than Conventional loans are because they are FHA insured loans that require Up-front Mortgage Insurance Premiums or (UFMIP).
Now you may be wondering “How much would I have to pay on my scenario in order to pay down the Reverse Mortgage over time if I were to get one?”
All Reverse Mortgage has developed the first ever reverse mortgage amortization calculator that allows you to do just that.
You can decide how much you would want to pay on a monthly basis and the calculator can show you how that will change the amortization of your loan.
How is a reverse mortgage calculated?
Based on your age and current interest rate, you receive a principal limit factor which is then divided into the appraised value of the property which equates the maximum loan amount. E.g., at age 62 the HECM PLF factor is 51.3%. Divide 51.3% into your appraised value to arrive at your available principal limit / loan amount.
Does interest accrue on a reverse mortgage?
Yes. By default, your interest do is rolled over to your outstanding loan balance unless you voluntarily repay interest on the loan. At any time, you can stop your loan from rising by repaying either interest only or principal plus interest. However, should you not make any interest repayment your loan balance will increase the next month by that interest charge.
Does a reverse mortgage have negative amortization?
Yes. On a traditional loan you typically have a structured 30-year repayment and the amortization schedule will show a balance that decreases with each payment. On a reverse mortgage, interest charges are added to your outstanding loan balance which then rises each month creating what’s called negative amortization. You can stop negative amortization by applying an interest only payment at any given month.
How is compound interest calculated on a reverse mortgage?
When you do not make an interest repayment on a reverse mortgage loan that interests that was due is simply rolled onto the outstanding loan balance the next month. Then the loan servicer will charge interest the next month on your new loan balance, this is called compounding interest.
Is interest on a reverse mortgage tax deductible?
The way tax rules work is interest becomes deductible when an actual repayment is applied to the interest. should you go 12 months without making any interest repayments You will not see an interest deduction for that year. However, should you pay off your reverse mortgage in full 5 years down the road you should have an interest deduction event for that payoff year. *Talk to your trusted tax professional.