The reverse mortgage program is designed exclusively for senior citizens to give borrowers access to some of the equity in their home. Just how much equity can be accessed depends on a number of factors. A reverse mortgage eliminates the borrower's mortgage, and therefore the mortgage payment. But reverse mortgages are among the more expensive mortgage programs, primarily due to the insurance premium. A reverse mortgage calculator helps borrowers understand how much money is available to them and how the program would cost them.
Factors the Calculator Considers
A reverse mortgage calculator considers primarily four factors to reach its result: the age of the borrower, the current interest rate, the fair market value of the property and the current mortgage balance. If two or more borrowers are considered for a reverse mortgage program, the age of the youngest borrower is used. The current interest rate is based on the current market index plus a margin, which is the percentage the lender is permitted to charge under the reverse mortgage regulations. Because the program allows access to a portion of the equity in the property, the calculator considers only the fair market value and not foreclosure sales. Finally, the current mortgage balance is entered, since the primary purpose of the program is to eliminate the mortgage. For purposes of the calculator, a balance owed on a credit line is considered to be a mortgage.
Reverse Mortgage Programs
There are several reverse mortgage programs available. Each type uses a different interest rate, which can adjust either monthly or annually. A fixed-rate program is also available. The amount of money available to the borrower varies depending on the type of interest-rate program. A reverse mortgage calculator will show each of the programs, as well as the amount of money available under each program.
Reverse mortgage calculators also produce an amortization schedule. The amortization schedule is designed to show borrowers what the status of their reverse mortgage program will be a given point in the future. The amortization schedule can show the status of the program in annual or monthly increments. It will show the loan balance; the growth in a line of credit, if applicable; the estimated value of the property in the future; and the equity retained by the borrower.
Reverse mortgage calculators also show the costs of the program. Some calculators specify each expense, while others refer to costs as "financed closing costs." The most significant costs include the mortgage insurance premium, the origination fee, the title insurance fee and the escrow fee.
Amount of Money Available
The vast majority of reverse mortgage borrowers are primarily interested in learning how much money will be available to them after the program eliminates their current mortgage and the costs are paid. A reverse mortgage program provides borrowers with several means by which the remaining money can be made available, and a reverse mortgage calculator will show how much money would be available with each option.
A lump sum, sometimes referred to as an initial advance, immediately provides the borrower with the entire amount of available money.
The monthly payment option provides a fixed monthly payment, usually until the borrower no longer lives in the home.
The line of credit option permits the lender to hold the money until the borrower requests all or some of it. While the money sits on the line of credit, it actually earns the borrower interest.
Finally, borrowers are typically permitted to combine these options. The lone exception is the fixed-rate program, which requires the borrower to immediately take all the money available to them.