Determining How Much a Reverse Mortgage Lender Will Lend
As of last month the new law went into effect allowing reverse mortgage companies to loan based upon the new higher FHA reverse mortgage limits.
At $417,000 the new national loan limits, in most parts of the country, absolutely bury the old limits by more than twice the former amount. It's quite a boon, but how does this affect the average borrower?
One could liken the lending limit to the actual value of a home and as a starting point to determine how much money the lender will actually allow the senior to borrow. If the value of the home exceeds the lending limit ($417,000), the borrower receives no additional benefit.
The reverse mortgage lender uses the FHA limits or value of the home as security for the money loaned to the senior. This value, determined by a licensed FHA appraiser, is a critical element.
The other vital derminants of the cash out amount are the age of the youngest borrower and interest rates.
Age makes sense right? Let's face it, reverse mortgage lenders are using actuarial tables, just like insurance companies, to determine how long the borrower will live in the house.
Even with FHA mortgage insurance in place lenders do not want to be in a position where more is owed on the mortgage than the value of the home. That being the case the lender will lend far more to the senior, whom the the actuarial tables say will be out of the home in 2013 as opposed to the borrower who will be out in 2024.
Since interest accrues on a reverse mortgage, to be repaid to lender when the home is eventually sold, the lender must be careful it lends conservatively such that all of the equity isn't stripped away prior to sale. This being the case, a bank lends more when rates are lower.
The prospective reverse mortgage candidate really needs to plug in all three of these variables into the formula to determine how much money he or she will qualify to receive. There are no hard numbers.
Without the formula we can only take a good guess. Today the oldest borrowers will get seventy five to eighty percent of the value of the home. The youngest ones, about fifty percent.
At $417,000 the new national loan limits, in most parts of the country, absolutely bury the old limits by more than twice the former amount. It's quite a boon, but how does this affect the average borrower?
One could liken the lending limit to the actual value of a home and as a starting point to determine how much money the lender will actually allow the senior to borrow. If the value of the home exceeds the lending limit ($417,000), the borrower receives no additional benefit.
The reverse mortgage lender uses the FHA limits or value of the home as security for the money loaned to the senior. This value, determined by a licensed FHA appraiser, is a critical element.
The other vital derminants of the cash out amount are the age of the youngest borrower and interest rates.
Age makes sense right? Let's face it, reverse mortgage lenders are using actuarial tables, just like insurance companies, to determine how long the borrower will live in the house.
Even with FHA mortgage insurance in place lenders do not want to be in a position where more is owed on the mortgage than the value of the home. That being the case the lender will lend far more to the senior, whom the the actuarial tables say will be out of the home in 2013 as opposed to the borrower who will be out in 2024.
Since interest accrues on a reverse mortgage, to be repaid to lender when the home is eventually sold, the lender must be careful it lends conservatively such that all of the equity isn't stripped away prior to sale. This being the case, a bank lends more when rates are lower.
The prospective reverse mortgage candidate really needs to plug in all three of these variables into the formula to determine how much money he or she will qualify to receive. There are no hard numbers.
Without the formula we can only take a good guess. Today the oldest borrowers will get seventy five to eighty percent of the value of the home. The youngest ones, about fifty percent.
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10:02 PM
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