With ARLO™ by your side, reverse mortgage calculations aren’t just about the numbers. Think of it as having a trusty ‘retriever’ to find your best reverse mortgage.
Features at a Glance:
Instant loan comparisons
Real-time interest rates, APR & cost estimates
Side-by-side amortization schedules
This lets you quickly compare and choose the most fitting program based on rate and costs.
Interactive Advice: Empower yourself with a robust toolset. It’s designed to spotlight the top reverse mortgage program tailored to your unique needs.
Trusted and Free: 100% Free, no Social Security Number required. Dive in and discover the reverse mortgage program options as they apply to your circumstances made simple!
Step 1: Input your zip code
Kick-start your journey by entering your zip code. Why? ARLO™ uses this knowledge to fetch precise 3rd party closing costs tailored to your area. This includes vital components like title fees, recording charges, and potential local taxes. Bear in mind the closing costs for a reverse mortgage aren’t uniform; they fluctuate based on location. This is true of fees linked to title insurance/searches, appraisals, and local governance.
Step 2: Input your age
Sharing personal details, especially age, can be delicate for many. But here’s the rationale: The core calculation of your reverse mortgage potential hinges on the age of the youngest borrower. By providing this, you’re ensuring the utmost accuracy in the results.
The borrower’s age influences the loan amount for a reverse mortgage. If your next birthday is within six months of finalizing your loan, this will warrant a higher loan amount.
Step 3: Dive into your analysis
Our calculator 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.
Important user tips:
Spouse’s Age Matters:
Always put your spouse’s age in the calculator, even when below 62, unless that spouse does not, has never, and will not live in the home.
Remember: The younger spouse’s age is crucial. It determines the loan amount of the reverse mortgage.
Mortgage Balances:
Be sure you include all mortgage balances for precise net proceeds.
Have a home equity line of credit (HELOC)? Include this balance in the mortgage payoff.
Let us know if you used the loan to take cash out of the property less than 1 year ago.
Timing Your Reverse Mortgage:
Close to a birthday? If you are within 6 months of your next birthday, the calculator uses the principal limit factor for the higher age of your upcoming birthday, giving you more money with your loan.
Top FAQs
Q.
How does the HECM calculator work?
The HECM 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 consisting of its Principal Limit Factors, which determines the loan-to-value ratio for each borrower’s age 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.
Q.
Are all reverse mortgage calculators the same?
All HECM 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 or the margins that lenders charge, so rates can vary among lenders and affect the funds you receive. At All Reverse Mortgage, we have developed All Reverse Loan Optimizer (ARLO™), which is different from other calculators. Our calculator 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, we provide amortization schedules for each rate option.
Q.
Do interest rates affect the reverse mortgage amount?
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.
Q.
How is the credit line growth rate computed?
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 (MI) rate (MI is currently 0.50% as of 10/09/2023). 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).
Q.
What is the formula for a monthly payment?
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 elect for a Tenure payment, the payments will continue to come no matter how long you live in the property if you live in your home and the loan is in good standing. If you opt for a term payment of 15 years, once the 180th payment is disbursed, no more funds will be available. 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.
Q.
Are HECM loans calculated differently than proprietary or jumbo reverse mortgages?
Some of the ways 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 jumbo reverse mortgages, 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 to $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 (10/09/2023), proprietary products do not.
Additional calculators courtesy of All Reverse Mortgage:
About the Author, Michael G. Branson | Mike@allreverse.com
Michael G. Branson CEO, All Reverse Mortgage, Inc. and moderator
of ARLO™ has 45 years of experience in the mortgage banking industry. He has devoted the past 19 years to reverse mortgages
exclusively.
