Step 1. Enter your property zip code, estimated value and any mortgage balances
Your zip code is important and allows ARLO™ to access accurate 3rd party closing costs such as title fees, recording and local taxes (if applicable) in your area. If you are unsure about your estimated home value, we will be happy to return a list of recent sales an appraiser will most likely use to compare to your home when determining their property estimate.
Step 2. Enter your age
Your principal limit is based on the youngest borrower’s age. This step only assures your calculations are returned as accurately as possible. If you are uncomfortable about using your birth date, give us the month and year but just use the first of the month for now. An exact date is better as amounts can change based on ages, but this would work for a start.
Step 3. View Your Analysis
The results ARLO™ will show you will also include special program recommendations based on your individual goals. You can review various options such as adjusting the amount of funds you would like to withdraw at closing. This allows you to view amortization schedules in advance. With ARLO™, you get the information to allow you to decide which program costs less over time, which carries the least origination fees and which program best meets your needs!
- Do not forget to include your spouse’s age, even if they are not yet 62 as loan proceeds are always based on the age of the youngest spouse.
- When you close a reverse mortgage within 6 months of your next birthday, your calculations automatically move you into the next year’s principal limit factor (if you are very close, it might benefit you to wait a few weeks).
- If you have a HELOC (Home Equity Line of Credit), be sure to include this balance as part of the total mortgage payoff.
What’s Included in Your Quote?
- Side-by-side loan comparisons
- Real-time interest rates + APR
- Estimate of closing costs
- Amortization Schedules
- Personalized Program Recommendations
The results will display all programs for which you are eligible including real-time interest rates and custom amortization schedules, but remember, it is always your call. We give you the information to make an educated decision.
As always, we are always here to answer any questions you may have.
What percentage of home equity is required for a reverse mortgage?
The percentage of your home’s equity that is available to an individual for a reverse mortgage depends on several factors. HUD uses the HECM calculator to determine benefits for each borrower that takes into consideration the ages of the borrowers, the interest rates at the time the loan is originated as well as the value of the home or the HUD lending limit whichever is less.
Since borrowers can stay in their homes for life and never have to make a payment on the loan, the reverse loan calculator takes all these factors into consideration to determine the amount the borrower will receive in their Principal Limit, or maximum available loan amount. When considering jumbo or proprietary programs, those products often use the same considerations but are subject to the requirements of the investors who offer the programs rather than HUD numbers.
In short, it is very difficult to publish Percentages or “Loan to Values” that are available simply because they change as the factors change. Older borrowers receive more money than do younger borrowers since with a shorter life expectancy, they are not liable to remain in the home as long and accrue as much interest on the home.
Interest Rates & Lending Limits
With today’s interest rates, borrowers receive more money because they do not accrue interest as rapidly. Borrowers with homes that have values that exceed the maximum HECM lending limit currently $970,800 receive less money as a percentage of their property value than those who are below that value simply because additional benefits cease to accumulate once the value rises above the $970,800 maximum.
Simply put, a borrower with all the same factors (age costs, etc.) owning a home valued at$970,800 will receive the same benefits as a borrower with a home valued at $1,000,000 This would mean that the percentage of one’s home value is higher than the other, even though the dollars are the same and for homes up to $970,800, the HUD program is usually still the best option in most cases. If your home is valued above the HECM limit, you may benefit more from a jumbo or proprietary program.
What is the loan amount you can borrow on a reverse mortgage?
The principal limit or loan amount you can receive as stated above is dependent on several factors. Borrowers ages, interest rates, property values or HUD lending limit whichever is less on the HUD Home Equity Conversion Mortgage (HECM) and these items as well on the jumbo programs but then the program parameters instead of the HUD lending limits on the jumbo or proprietary programs.
How is the line of credit growth rate calculated?
The credit line growth rate is based on the unused portion of the line of credit. For any funds remaining in the line of credit, the line grows at a rate equal to the interest and mortgage insurance premium (MIP) that would be accruing on those remaining funds for as long as they remain unused.
Growth Rate Example:
E.g., if your interest rate is 4.5% and the MIP is .5% the total interest and MIP that would accrue on the funds is 5%. If you have $50,000 left on the line that you did not use and therefore did not accrue that 5%, that $2,500 (5% of $50,000) is then added to the line of credit and is available to you in an increased line amount. The next year you would have $52,500 available.
If the funds were not used in the following year, the growth would be computed on the balance or $52,500. Any funds borrowed would no longer be included in the growth calculation. You must remember that the funds only grow on the unused portion of the line. There is no growth in funds already used as they are accruing interest, so they do not result in an increase in the amount available to borrowers. The growth is not interest borrowers are earning. This is not a bank account where you have money sitting and where you are accruing interest.
It is an increase in your line and if you borrow those funds, you or your heirs owe those funds when the loan becomes due. If you decide never to borrow them, there are no funds available to heirs, but you and your estate do not owe them either. The equity remains in the home for you or your estate if you do not borrow the money.
How is the tenure payout calculated?
The tenure payment is a calculation that uses the benefit the borrower(s) receive based on the Principal Limit discussed above. The calculation takes that benefit amount and then uses the borrower(s)’ age(s) to determine the number of years the benefit must continue and assumes the credit line growth rate based on the known factors.
It then calculates a payment based on the known and assumed factors to determine the monthly payment that the borrower(s) would receive for life using the growth the line will receive on the falling balance. This amount exceeds a straight division of the Principal Limit divided by the borrower(s)’ life due to the growth of the funds in the line.
The exact calculation can be found on the HUD website.
How is the lump sum calculated?
The lump sum is calculated based on whether the loan is being used to purchase a home or the amount the borrowers owe on current mortgages and liens for all programs, but then future funds availability will depend on the program you choose and how much of your Principal Limit you use on the lump sum payment.
All programs can take up to 100% of their Principal Limit in a lump sum if the funds are needed to purchase a home or to pay off existing loans. If the loan is not being used to purchase or pay off existing loans, then there can be a limit on the initial draw. Prior to a change in 2014, the lump Sum was exactly that, a lump sum of the entire Principal Limit for which the borrower qualified under the program.
The lump sum of the entire Principal Limit was an option the borrower received for the fixed rate loan or could be an election the borrower took under the adjustable line of credit. Borrowers wanting a fixed rate loan are required to take a lump sum draw as there are no subsequent draws allowed under the fixed rate program whereas borrowers who opt for the line of credit can receive multiple draws under the program.
Helpful calculators courtesy of ARLO™
- Amortization Calculator with Excel File – This calculator includes a free excel file download which you may run unlimited “what if” scenarios. E.g., change in future interest rates, change in appreciation rates etc.
- Line of Credit Growth Rate Estimator – This calculator estimates the line of credit growth rate illustrating compound growth with a personalized future withdraw simulator.
- HECM Purchase Calculator – This calculator estimates your down payment & loan terms for a new home purchase.
- Top 3 Reverse Mortgage Calculators of 2021 (No Personal Info) – Use these simple calculators for a quick estimate while keeping your information private.