How is the reverse mortgage life expectancy set-aside calculated?
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Michael G. Branson, CEO of All Reverse Mortgage, Inc., and moderator of ARLO™, has 45 years of experience in the mortgage banking industry. He has devoted the past 20 years to reverse mortgages exclusively. (License: NMLS# 14040) |
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All Reverse Mortgage's editing process includes rigorous fact-checking led by industry experts to ensure all content is accurate and current. This article has been reviewed, edited, and fact-checked by Cliff Auerswald, President and co-creator of ARLO™. (License: NMLS# 14041) |
Dear Fernando,
HUD determines the required funds for a Life Expectancy Set Aside (LESA) based on a borrower's life expectancy, income qualifications, and past payment history for taxes, insurance, and other property-related expenses.
How HUD Calculates LESA
The LESA amount is designed to cover these costs over the borrower's expected lifetime while accounting for potential growth in the line of credit. The required amount depends on:
- The borrower's age
- The annual cost of property taxes and insurance
- The loan’s interest rate and projected credit line growth
For example:
- A 78-year-old borrower with $500 in annual taxes and insurance may require an estimated $9,606 in LESA funds.
- A 62-year-old borrower with $4,000 in annual property taxes and $1,200 in insurance could need around $83,661 in LESA due to higher expenses and a longer payment period.
These figures are estimates and may vary based on interest rates and other factors.
Benefits of LESA
- No interest accrues until funds are used – Similar to a credit card, LESA funds are available when needed but don’t cost you anything until they are used for tax or insurance payments.
- Automatic payments – Eliminates the stress of keeping up with tax and insurance bills, ensuring they are paid on time.
- Unused funds are not part of repayment – If you move or pass away before using the LESA funds, neither you nor your heirs owe anything for the unused portion.
The LESA provides peace of mind by ensuring your property expenses are always covered, protecting both your home and your financial well-being.
For more details, you may also find this helpful: How the Reverse Mortgage LESA Offers Peace of Mind.
