Question:

What is the process for reverse mortgage calculation and qualification?

Answer:

Calculation of reverse mortgage payments is not done in the same way by all lenders. Different lenders take into account many factors in their own way and treat each case individually. However, the factors that go into the calculation of a reverse mortgage payment are roughly the same and are as follows:

Factors Affecting Calculation of Reverse Mortgage

  • Market Value of the House: The biggest factor that determines the payment you may receive on a reverse mortgage is the market value of your house. The bigger this value, the bigger loan you can get.
  • Base Index Rate: The interest charged on a reverse mortgage is usually tied to an index interest rate that forms its base.  A margin is then added to the base index rate to increase lender's earnings. Due to the nature of index rates, the interest rate is capped so that it cannot increase beyond a certain limit over the life of the reverse mortgage.
  • Age of the Homeowner: Reverse mortgages are meant for seniors above the age of 62. The older you are; the bigger amount you can get as a reverse mortgage.
  • Closing Fees: If closing costs are rolled into the loan amount, they lessen the usable amount of money you receive on your reverse mortgage.
  • The mode of payment: Reverse mortgages have different modes of payment. You might want a line of credit where you can get money whenever you need it or you may want a lump sum paid up front. How you'd like to receive your loan will determine the amount of payments you receive as a reverse mortgage.

Qualification for Reverse Mortgage

Even though the exact requirements may not be the same with different lenders, the following are a must for qualification of a reverse mortgage:

  • The house must be owned by the borrower.
  • The borrower's age must be above 62.
  • The house must be the primary residence of the borrower.
  • The house should be a single family or a two-to-four unit property.
  • It is preferable that the borrower have 100% of equity in the house. If not though, the amount owed on the house should be such that it would be paid off by the income from the reverse mortgage.
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