How much can I get from a reverse mortgage?

A reverse mortgage is a means by which you can access a percentage of the equity in your home. How big of a percentage depends on two factors:

·       Your age (62 minimum)
·       The current interest rates

Lenders use FHA actuarial tables based on you living to 100 and the expected loan rate to determine exactly what percentage they will loan. If the expected rate for the loan (how the lender expects it to average over the next 10 years) is 5.50% (the rate floor) or lower, I have a rule of thumb you can use. Please note that this is not a promise by any means – it just gets you in the general ballpark.

Loan Percentage = Age (as a percentage) – 5%

If the expected rate of the loan is over 5.50%, the loan percentage starts dropping quickly. A 1% increase to 6.50% can decrease the loan percentage 9% or more.

So at 5.50% loan rate, an 85-year-old might net 80% of their home value while a 62-year-old might net 57%. If the loan rate increases to 6.50%, those loan percentages drop to about 71% and 48% respectively.

Lower-value homes net less because the fixed closing costs are a bigger factor to the overall transaction cost. Manufactured home costs can be slightly higher because they often need stem wall upgrades to meet FHA standards.

Dave Parker
602-750-8166
Your Reverse Mortgage Resource
www.ParkerInReverse.com

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Home Care Central Phoenix and Home Care Greater Phoenix provides elder care and senior care in Phoenix. Call us today at 623-583-5868, 602-265-8228 or 480-991-3959.

Reverse mortgages are not a panacea – they may not be appropriate in many situations:

* You don’t need money or a credit buffer. If you don’t need money or a credit buffer then why get a reverse mortgage? For that matter, why get any mortgage? Make sure to take a long view of your possible future income and expenses though.
* You don’t plan to stay in your house at least another four years. Closing costs on reverse mortgages are higher than on forward mortgages. The closing costs become smaller compared to the interest the longer you hold the loan. After four years or so, the loan starts getting very cheap but up to then it can be expensive.
* You are unlikely medically to be able to stay in your home another four years. You must look realistically at your physical health and weigh the advantages of using the reverse mortgage proceeds versus the possibility of experiencing a condition that would require you to move out of your home early (ending the loan).

Reverse mortgages may be appropriate if any of the following are true:

* You have a negative cash flow (expenses more than income)
* There is a significant chance your expenses will rise in the future causing a negative cash flow
* There is a significant chance your income will decrease in the future causing a negative cash flow
* You have some other use for the money. Some people want money to take vacations while they still can get around decently.

Dave Parker - ParkerInReverse.com

602-750-8166
At The Lending Company

Home Care Central Phoenix and Home Care Greater Phoenix provides elder care and senior care in Phoenix. Call us today at 623-583-5868, 602-265-8228 or 480-991-3959.

Our blog post features David Parker from Your Reverse Mortgage Resource

I talk with a lot of retirees in my capacity as a loan officer specializing in reverse mortgages. While you would think you could make a simple calculation and figure out a “magic” number it is not that easy.

Lets say your cash flow (income minus expenses) would be positive if you were to retire today. What is the most likely scenario as you age? In almost all cases, your income over time will decrease while your expenses increase.

If you have a pension, will it end for your spouse if you die? 70% of retiring workers pick the higher option that ends when they die. If you die, your spouse also loses the lower of your two social security incomes.

While health care insurance can be obtained cheaply for most retirees this doesn’t cover long-term care done in your home or in an assisted living facility. 20-hour per week non-nursing in-home care can cost at least $1000 per month while assisted living can cost from $3000 to $6000 a month. What is the likelihood you will need that? Can you get family or friends to support you instead? How do you plan for such a large expense? Do you buy long-term care insurance? Can you even get it now?

If you have a new medical condition, it can add up to $800 per month in prescription drug costs. Generic versions of most drugs can be obtained very cheaply but some drugs have no generic versions. How do you plan for that? What about hospital stays? What are the limits to your coverage? When does your family have to start paying?

A reverse mortgage cannot fix all financial woes. It is just a tool to access your equity and help pay for these and other things without messing up your cash flow.

Dave Parker
602-750-8166
ParkerInReverse.com
At The Lending Company

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