ARLO™ CALCULATOR RESULTS
Your personalized results will include a variety of helpful information to assist you in making an informed decision about your reverse mortgage. The results will consist of side-by-side comparisons of different loan options, real-time interest rates and annual percentage rates (APR), an estimate of closing costs, and personalized program recommendations.
We understand the importance of clearly understanding the financial implications of your reverse mortgage. Therefore, we will provide customized amortization schedules for each loan option, which will clearly illustrate the amount of interest that will be added to your outstanding balance over time and the amount of equity you can expect to retain throughout the life of the loan.
Access to this valuable information at your fingertips will allow you to make an informed decision about the reverse mortgage option that aligns with your needs and financial goals.
ABOUT REVERSE MORTGAGES
A reverse mortgage is a type of loan that allows homeowners aged 62 or older to borrow against the equity in their home. Unlike a traditional mortgage, no monthly payments are required on a reverse mortgage, as the loan is only due when the borrower sells the home, moves out, or passes away. The amount that a borrower can receive from a reverse mortgage is determined by their age, the value of their home, and current interest rates.
Borrowers can receive their loan funds in a lump sum, as a line of credit, as monthly payments for a fixed term, as monthly payments for life (tenure payments), or as a combination of these options. The U.S. Department of Housing and Urban Development (HUD) has rules in place regarding how much money a borrower can access from a reverse mortgage, which considers factors such as the amount needed to pay off existing loans or liens on the property, whether the borrower is purchasing the home or refinancing an existing reverse mortgage, and more.
Reverse mortgage lenders like All Reverse Mortgage, Inc. offer calculators like ARLO™ that can help borrowers determine their potential benefit amount, compare different loan programs and provide up-to-date information on accurate interest rates and costs.
STEP 1. ENTER YOUR PROPERTY ZIP CODE, ESTIMATED VALUE, AND ANY MORTGAGE BALANCES
Your zip code is essential and allows ARLO™ to access accurate 3rd party closing costs such as title fees, recording, and local taxes (if applicable) in your area. Suppose you are unsure about your estimated home value. In that case, 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.
Closing costs for a reverse mortgage can vary significantly depending on the property’s location. These costs can include fees for title, appraisals, state and county fees, and more. It is crucial to provide your zip code when using a reverse mortgage calculator, as this will allow the calculator to determine the closing costs for your area accurately.
Some lenders may only include some closing costs in their initial proposals. Still, it is important to understand all costs associated with a reverse mortgage from the start rather than being surprised by additional fees later on. It is always a good idea to ask your lender about any fees not included in their initial proposal to ensure you understand all reverse mortgage costs.
STEP 2. ENTER YOUR AGE
Understandably, some people may hesitate to provide personal information, such as their age, during an initial inquiry for a reverse mortgage. Your principal limit is based on the youngest borrower’s age. This step only assures your calculations are returned as accurately as possible.
To ensure the calculator results are accurate, you can provide each borrower’s month and year of birth, even if you are uncomfortable disclosing your exact age. However, it is important to remember that the loan amount for a reverse mortgage is based on the borrowers’ ages. If you are going to be one year older within six months of closing your loan, you may be eligible for a higher loan amount.
STEP 3. VIEW YOUR ANALYSIS
ARLO™ provides a range of options for borrowers to choose from. It is important to carefully review these options and consider which best suits your needs. Your loan officer can help you understand the pros and cons of each option and answer any questions you may have.
It is important to remember that the loan officer’s role is not to “sell” you on any particular program or option but to provide you with the information you need to decide which option is best for you. Take the time to thoroughly review your options and consider which one is most appropriate for your unique situation.
HERE ARE SOME TIPS TO KEEP IN MIND WHEN USING THE ARLO™ CALCULATOR:
- Remember to include your spouse’s age in the calculator, even if they are not yet 62 years old. The loan amount for a reverse mortgage is based on the youngest spouse’s age, so it is important to include their age in the calculations.
- Suppose you plan to close your reverse mortgage within six months of your next birthday. In that case, your calculations will automatically move you into the following year’s principal limit factor. This can affect the loan amount you are eligible for, so it may be beneficial to wait a few weeks if you are close to your birthday.
- Overall, providing as much information as possible when using the calculator is important to ensure that you receive accurate and relevant results. If you have a home equity line of credit (HELOC), include this balance in the mortgage payoff. This will ensure that the calculator provides accurate results for your situation.
How does a reverse mortgage calculator work?
The reverse mortgage calculator uses the borrower’s age, property value (or HUD lending limit, whichever is lower), current interest rates, and HUD guidelines to calculate the available proceeds and principal limit. HUD has a table called Principal Limit Factors, which determines the loan-to-value ratio for each borrower based on the expected interest rate. This ratio is then applied to the property value or lending limit to find the total loan amount, called the Principal Limit.
Are all reverse mortgage calculators the same?
All reverse mortgage calculators use the HUD Principal Limit Factors to determine the loan amount based on the borrower’s age and current interest rates. However, it’s important to note that HUD does not regulate interest rate options in the market, so rates can vary among lenders and affect the amount of funds you receive. At All Reverse, we have developed ARLO, the All Reverse Loan Optimizer, which is different from other calculators. ARLO gives you accurate, instant information about all costs in your area and breaks down the differences between various rate options based on factors such as the lowest interest accrual or fees. In addition, ARLO provides an amortization schedule for each rate option under consideration rather than just one.
How much money do you get on a reverse mortgage?
Several factors determine how much money you can receive with a reverse mortgage, including your age, current interest rates, the value of your property, and any outstanding debts on the home. To get an accurate estimate of the proceeds you can expect to receive, it is recommended to use a reliable reverse mortgage calculator. This tool considers all these factors to provide a convenient and accurate estimate of your loan proceeds.
What percentage of appraised value can you get on a reverse mortgage?
The percentage of the appraised value varies with several factors. The borrower’s age, the interest rates in effect, and whether the home is valued up to or over the maximum lending limit will all make a difference in the percentage of the home’s value the borrower can expect to receive. For example, because the loan does not require any repayment while the borrower lives in the home and pays their taxes and insurance, a borrower of 62 years of age will receive less on a loan than a borrower of 85 years of age due to the propensity of being able to live in the home longer and accrue more interest over their lifetimes. Also, the HUD maximum lending limit for 2023 is $1,089,300. If the home is worth any amount up to this number, the borrower’s loan is based on the home’s total value. However, if the home is appraised higher, say for $1,250,000, the loan would still be based on the HUD maximum of $1,089,300, and therefore, the loan as a percentage of the home’s value would be less.
How do interest rates affect the reverse mortgage calculation?
As the interest rates increase, the amount of money available to the borrower decreases. HUD establishes a “Floor rate,” which is currently 3%. Any time the expected rate is at or below the floor rate, the borrower will receive the maximum amount of money available for their age and property value under the program. However, their proceeds shrink once the expected rate exceeds the floor rate. The higher the rate over the floor rate, the less money is available to the borrower.
How is the line of credit growth rate calculated?
The HECM line of credit comes with a guaranteed growth rate, which is applied to your unused portion of the line of credit each month. The growth rate is calculated as your current interest rate plus the mortgage insurance rate (currently 0.50% as of 02/20/2023). This calculation is performed monthly based on the remaining balance in your line of credit. For example, if you have a HECM loan with a $75,000 unused line of credit and a hypothetical interest rate of 4%, your growth rate would be 4.5% (4% + 0.50%). This means that each month, you would receive an increase of $281.25 in your line of credit ($75,000 x 0.045/12).
How are monthly payments calculated on a reverse mortgage?
The calculation for a monthly payment plan option is quite the mathematical formula. Essentially the formula considers how much money is available from the loan, the age and life expectancy of the youngest borrower, the current expected interest rate, and the duration of the payment plan chosen. For example, you can take a payment plan called a Tenure which is a guaranteed payment for life, or you can opt for a payment plan over a specified Term. If you opt for a term payment of 15 years, once the 180th payment is disbursed, no more funds will be available. If you elect for a Tenure payment, the payments will continue to come no matter how long you live in the property if you are still living in the property and the loan is in good standing. The older you are, the higher the monthly payment amounts will be. Subsequently, the longer the duration of the payment plan chosen, the lesser the amount will be. To determine how much is available for your specific circumstances, you need to consult with a lender for them to run those scenarios for you through their calculator.
How is the lump sum calculated?
The lump sum available to borrowers will depend on their specific loan circumstances. HUD has guidelines that limit the amount of funds that can be disbursed at the time of loan closing. Suppose the reverse mortgage is for a purchase transaction. In that case, however, there is no limit, and the entire loan amount is disbursed at closing to be applied to the purchase price. Additionally, if a borrower owes a substantial amount on an existing mortgage that must be paid off, the entire amount can be disbursed at closing to satisfy that mortgage. The HUD guidelines for initial lump sum disbursement allow for all mandatory obligations (closing costs + any outstanding debt owed that is secured against the property) + additional 10% cash out to the borrower or 60% of the Principal limit (whichever is greater). For example, if a borrower has a $100,000 Principal Limit, zero outstanding liens on the property, and closing costs of $7,000, they can have a maximum starting loan balance of $60,000 as that would be 60% of the Principal limit so their lump sum would be $53,000. If that same $100,000 Principal Limit scenario had an outstanding mortgage of $75,000, the borrower could have a max starting loan balance of $92,000 (Mandatory Obligations of $82,000 + 10% of principal limit). Whenever money is left over beyond the initial max lump sum, the availability of those funds depends on the chosen product type. A Fixed Rate loan is what is known as a single lump sum disbursement instrument meaning that you can only take a one-time draw at closing, so if the HUD guidelines do not permit all funds at closing due to the circumstances of a borrower, those funds would not be available later. However, on an Adjustable-Rate loan, those funds not permitted for initial disbursement are kept in the Line of Credit and become available after 12 months.
Are HECM loans calculated differently than proprietary/jumbo reverse mortgages?
Some of how these loans are calculated are similar, and some differ. For example, the HECM and proprietary programs consider the age of the youngest borrower to determine the available loan-to-value they are eligible for. However, with the HECM loan, the higher the interest rate rises, the lower the loan-to-value. For proprietary loans, the higher rate options available in the market usually yield a higher loan to value. HECM loans have a higher percentage loan to value when comparing the same ages but are subject to the HUD maximum claim amount, which is $1,089,300 for 2023. Proprietary loans are not subject to this value ceiling and consider the entirety of the property value up to a maximum loan amount of anywhere from $4-$5M. Additionally, the HECM program allows a deferral option for an eligible non-borrowing spouse who may be less than 62. In contrast, at this time (02/20/2023), proprietary products do not.
Additional calculators courtesy of ARLO™