reverse loan calculator
I am often asked why seniors get a reverse loan, there are various reasons and different situations where it becomes the best option, and over the years I have encountered the most common reasons and they tend to be the same ones each time I meet with a client.
The number 1 reason is that seniors simply don’t have enough money every month to cover their ongoing expenses and especially since services, utilities, food, insurance, and medical care have increased but not their income and they may be burdened with a mortgage payment and using their savings to pay it each month.
The number 2 reason is for unexpected and major expenses. Lately, I am meeting with families who can’t afford to pay caregiving expenses, due to a major medical event and they are draining the money from their savings and investments to cover the fees and are concerned about running out of money.
Another unplanned expense might be home repairs. Typically it is a very expensive plumbing repair or a new roof for their home. Quite often there is a great deal of deferred maintenance and now repairs have become necessary and can no longer be put off or delayed.
The number 3 reason, is they want to remodel their home and make it more “senior friendly” as they age and plan to continue to live in their home. It could be remodeling a bathroom or kitchen to make them easier to maneuver in and make things easier to reach if someone is in a wheelchair and of course other considerations.
And the number 4 reason, is they simply want more money to enjoy their life. They may want to travel, purchase a second home using the reverse loan money towards that purchase, or simply to have the peace of mind, that they will not be financially restricted because they will have enough money to meet their personal needs.
A reverse loan can be used for many different reasons, but these are the ones which are the most commonly used by seniors and their families to solve a worry or problem.
Last month the U.S. Department of Housing and Urban Development (HUD) increased the lending limits for federally backed reverse mortgages and this is very good news for seniors.
The new Lending Limit for FHA HECM loans went into effect this month ( January) and the amount is now $726,525 an increase from the previous limit of $679,650 and it could make a difference for seniors who were unable to receive enough funds from a reverse loan to pay off an existing mortgage prior to this increase from HUD.
California has some of the highest property values in the country and on the average many homes exceeded the old HUD Lending Limit and homeowners need to have access to the equity that fell through a “donut hole”. But now they have the possibility of receiving more money then previously and it’s worth the time to find out.
The reverse loan amount is calculated by the youngest borrower’s age and the HUD Lending Limit for the value of the subject property and other factors, but the main determination is the value of the property and with the increased Lending Limit, it just might make a difference for seniors to qualify successfully for a reverse loan.
For senors who previously looked into using the loan but it wouldn’t benefit them, I would say, now is the time to revisit it and see if the recent changes will make a difference for you, plus there are so many other new options and loan programs to chose from, but you need to do your research.
California obviously has the most expensive properties in the country and a very high rate of citizens who are seniors but are carrying mortgages on their homes which are preventing them from retiring due to mortgage debt.
Many working seniors would like to retire but they can’t because of the ongoing mortgage payments and sometimes they find themselves withdrawing funds from their retirement investments to make the payment each month.
And depending on how many years are left on the mortgage, many are concerned about running out of money to make the payments and the other monthly obligations.
The average home value in California generally exceeds the HUD Lending Limit that is currently at $679,650 and if a homeowner has a home with a great deal more equity than the FHA HECM would allow them to withdraw, then a Jumbo reverse loan would be an additional option for consideration.
There are many new Jumbo loan programs to choose from that are superior to the FHA HECM in many aspects and are considerably less expensive in regards to fees. Here are some highlights and are subject to change in the future.
- Maximum loan amounts to 4 MM
- Fixed rates or a LOC
- 2nd T.D’s for those who would like access to their equity but currently have a 1st T.D. in place with a favorable interest rate they wish to keep, preserving more of their equity. This option can also be used as a 1st T.D.
- Origination fees vary by the loan choice but are “none” to either 6K or 8K maximum.
- No Mortgage Insurance Premiums.
- Non-Recourse Loan. The borrower continues to own their home. No equity sharing or pre-payment penalties. The property will go to the heirs of the borrowers when they (the borrowers) have passed away.
- Can be used to purchase a home. “Right-Sizing/Down Sizing”.
- No payments are required other than the borrower must continue to pay property taxes, Homeowners Insurance, and HOA fees and keep the property well maintained.
- No loan terms.
- Borrowers must be at least age 60 or 62. It depends upon the loan choice to determine the minimum age.
Due to some recent changes in the last year, the FHA reverse loan has lost some “traction”, due to the return of the historical MIP calculation, a reduction in the amount of funds available to the borrower, and most recently a collateral review of each applicant’s appraisal.
And if there are any concerns that the first appraisal may have been inflated, a second one will be required at a cost to the borrower and no one would like being told that they might have to pay for an additional appraisal.
This latest policy change will cause the loan processing period to possibly extend out an additional two weeks, but this will be another post for a later date.
But like the Calvery coming to the rescue, Jumbo reverse loans might very well be an ideal solution for some senior homeowners as there are more options to consider then there were in the past.
Jumbo reverse loans are less expensive than the FHA option and ideal for those properties that would be considered “high value”, such as 1MM or more and for California, that could apply to many seniors who own a home which might exceed the current HUD Lending Limit of $679,650.00.
Another name for this option is a proprietary reverse loan, meaning it’s not a government program as the FHA loan is, but is offered though investors and they work exactly like the traditional reverse mortgage.
And what are the new proprietary loans like and how similar are they to the FHA reverse loan?
I will share those details in the next post very shortly.
When I first started in the reverse loan industry over 17 years ago, there was only one loan option at the time. And it was the FHA Home Equity Conversion Mortgage, affectionally known as the HECM. It is a Line-of-Credit and remains the most popular reverse mortgage that seniors apply for.
Initially, there was one interest rate and no other choices, but now there are several different rates that a borrower can select, of course depending upon what is the most beneficial to them and their particular goals. And there are also Fixed-rate mortgages for those who may be sensitive to interest rate fluxations.
And although the FHA loan remains very popular there are additional options for the borrower to choose from, especially if their home exceeds the HUD Lending Limit that as of this writing, is $679,650.00 and they want to access more of their equity than the HECM would provide to them.
So what is the solution to this question when a home’s value is much more than the HUD Lending Limit and especially in those states such as California where the average home value is quite often above 1MM?
A Jumbo reverse loan of course. And in the last few years what started out as a single offering, has developed into several options allowing more benefits to a senior homeowner.
My next post will share some of the details about them, how they function and whether or not they are always the best choice for a senior who is considering a reverse mortgage.