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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 program. 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 varies based on age and interest rates.
Details: Accurate principal limit calculation is crucial for seniors considering reverse mortgages to understand their available equity, plan retirement finances, and make informed borrowing decisions.
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 positive numbers.
Q1: What is a principal limit factor?
A: The PLF is a percentage that determines how much of your home's value you can borrow. It's based on the youngest borrower's age and current interest rates.
Q2: What are typical lending limits?
A: Lending limits vary by location and program, but are typically set by government agencies like HUD for FHA-insured reverse mortgages.
Q3: How often do PLF values change?
A: Principal limit factors can change monthly based on market interest rates and program adjustments.
Q4: Are there costs associated with reverse mortgages?
A: Yes, reverse mortgages typically include origination fees, mortgage insurance premiums, and other closing costs that reduce the net proceeds.
Q5: Can the principal limit increase over time?
A: The initial principal limit is fixed, but unused lines of credit may grow over time at a specified rate.