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How is the reverse mortgage life expectancy set-aside calculated?

By Fernando A. on 12.14.2018

Dear Fernando,

The HUD guidelines determine the necessary funds for a Life Expectancy Set Aside (LESA) based on the borrower's life expectancy, factoring in income qualifications or previous credit issues, such as late or non-payment of taxes, insurance, and other property-related charges.

Essentially, HUD calculates the required LESA amount to cover these expenses over the borrower's expected lifespan, considering potential growth in the line of credit.

The LESA amount varies depending on the borrower's age and the annual property taxes and insurance costs. For example, a borrower in their late 70s with annual property taxes and insurance costs of $500 each would require a minimal LESA.

Conversely, a younger borrower at 62, facing higher annual expenses of $4,000 for taxes and $1,200 for insurance, would need a significantly larger LESA to cover these costs for a longer expected lifetime.


Let's look at specific scenarios:

A 78-year-old borrower with $500 annual taxes and insurance would need a LESA of approximately $9,606. This figure is an estimate and could change with interest rates and credit line growth.

Considering the same interest rate, a 62-year-old borrower with annual taxes of $4,000 and insurance of $1,200 would require a LESA of around $83,661. The higher expenses and longer payment periods necessitate a larger LESA.


Additional Advantages

An advantage of the LESA is that it accrues no interest until the lender uses the funds for tax or insurance payments. It's akin to an unused credit card; the funds are available when needed without any cost to you.

The LESA eliminates the worry of annual or semi-annual payments, ensuring your obligations are met on time, directly from your line of credit.

Should you move or pass away before using the LESA funds for their intended purpose, neither you nor your heirs owe anything for these unused funds. No interest is accrued on them, and they are not part of the repayment amount if you refinance or sell the property.

The LESA provides peace of mind by ensuring your property charges are always covered and safeguards your financial health and legacy.

Also, consider reading: "How the Reverse Mortgage LESA Offers Peace of Mind" for more insights into the benefits of the LESA.


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