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Reverse Mortgage Equation:
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The Reverse Mortgage Calculator estimates the principal limit available to homeowners through a reverse mortgage. It calculates the maximum loan amount based on home value, lending limits, and principal limit factors.
The calculator uses the reverse mortgage equation:
Where:
Explanation: The equation calculates the available principal limit by taking the minimum of home value and lending limit, then multiplying by the principal limit factor which is determined by the borrower's age and current interest rates.
Details: Accurate principal limit calculation is crucial for homeowners considering reverse mortgages as it determines the maximum amount they can borrow against their home equity while maintaining home ownership.
Tips: Enter home value in dollars, lending limit in dollars, and principal limit factor (typically between 0.4-0.6 for most borrowers). All values must be valid positive numbers.
Q1: What Is A Reverse Mortgage?
A: A reverse mortgage is a loan that allows homeowners aged 62 or older to convert part of their home equity into cash while retaining home ownership.
Q2: How Is The Principal Limit Factor Determined?
A: The PLF is based on the borrower's age (older borrowers get higher factors) and current interest rates (lower rates result in higher factors).
Q3: What Are Typical Lending Limits?
A: Lending limits vary by location and are set by HUD for HECM loans. They typically range from $400,000 to $1,000+ depending on the county.
Q4: When Does The Loan Need To Be Repaid?
A: Reverse mortgage loans become due when the last surviving borrower dies, sells the home, or permanently moves out of the property.
Q5: Are There Costs Associated With Reverse Mortgages?
A: Yes, reverse mortgages typically include origination fees, mortgage insurance premiums, closing costs, and servicing fees over the life of the loan.