A reverse mortgage is a financial operation that allows individuals of a certain age to access the equity of their homes to use for cash expenses. Equity is a term that refers to the difference between the overall market value of the home and the amount that is owed on a loan, such as a mortgage.
Typically, equity is achieved upon selling the property. In the United States, a person must be at least 61 to qualify for a reverse mortgage, as well as having no existing mortgage loan in the property. A reverse mortgage essentially allows for the remaining mortgage amount to be paid off, and using the difference as a source of cash.
In the even that a qualified individual is considering using his/her home’s equity as a means to generate income, he/she may consider using a reverse mortgage calculator.
What is a Reverse Mortgage Calculator
Obtaining a reverse mortgage is subject to other factors aside from the applicant’s age. Issues such the interest rate of the current mortgage, the value of the property, and the remaining balance of the current mortgage will also be considered.
A reverse calculator is meant to help take into consideration such factors in order to help determine the total value of the equity on the property, and thus, the amount of funds made available through a reverse mortgage.
How Does a Reverse Mortgage Calculator Work?
The four main factors that are used for calculating the value of home equity are age, current interest rates, market value of the property, and balance of the mortgage.
The current interest rates will be based on the current market index, in addition to a pre-determined margin, which will be the fee that the lender is allowed to charge for the reverse mortgage.
An example of a basic reverse mortgage calculator result could be an individual that qualifies for a $200,000 reverse mortgage. However, the individual still owes a total of $150,000. Therefore, only a total of $50,000 would be available to the lender, which does not factor in the applicable fees for the reverse mortgage.
A reverse mortgage calculator will take into consideration of the incurred fees by the lending institution if the rates are known. However, typical rates regarding fees will usually consist of about $30 to $40 a month charged in accordance to the borrower’s expected lifespan.
Therefore, reverse mortgage fees can prove to be quite an expensive undertaking. Many lending institutions will require that the fees, often times referred to a service fee set-aside, be paid up front. Therefore, the overall amount that is provided as a result of the reverse mortgage can be affected considerably.