This site has given you the basics of how a reverse mortgage works, it has discussed the particular pieces of a reverse mortgage and defined most of the terms used but how much could someone get from a reverse mortgage if they were interested? The different calculators that we used could be considered a bit daunting for some so let's take a look at 4 different examples based on 2 different properties but at different ages.
The first is for a $150,000 home at 62 and at 75 and a $350,000 home at the same ages. We'll base these numbers on rates for the week of November 24th. The rates right now are giving someone maximum access to their home's value and the interest rates on the accrued balances are at almost historic lows.
For the $150,000 home:
A 62 year old borrower or a couple with the youngest borrower at age 62 will be able to get roughly $80,000. That is roughly 53% of the home's value. That $80,000 is tax free and can be used for whatever the borrower needs it for: paying off an existing regular mortgage, paying off credit card debt, fixing something that saps cash flow, or anything they need money for. That $80,000 can be taken as a lump sum or it can be paid as a lifetime monthly payment of $437 until their passing or moving from the home. That same $80,000 or a portion of it can also be put into the reverse mortgage credit line and the borrower can see that money grow to upwards of $95,000 in 5 years if left alone. Even a smaller amount left in the credit line can grow over time at current rates of around 3.60%. Those rates can change and right now they are at almost historically low rates so it's quite possible to see them increase over time and therefore the credit growth rate will likely increase as well.
A 75 year old borrower in the same situation would see cash available of $96,000 or monthly payments of $622.00. That same $96,000 could grow to $115,000 in 5 years. That is roughly 65% of the home's value at age 75.
Regardless of age, to initiate a reverse mortgage would cost the same and in this case its 2% of the home's value for origination fee ($3000 in this example) plus 2% of the home's value for mortgage insurance ($3000 in this example) and then the typical real estate transaction closing costs ($2000 to $4000). The total ranges from $8,000 to $10,000 depending upon which state you are in and their respective recordation taxes.
For homes over $200,000 in value, HUD has a different way to calculate origination fees and MIP fees. Those are done by taking 2% of the first $200,000 and then 1% of any amount over $200,000 up to a cap or limit of $6000. The next example shows how that would break down.
For the $350,000 home:
A 62 year old borrower will be able to get access to $197,000 or $1090 a month for as long as they live in the home. That is roughly 56% of the home's value. That same $197,000 could again be used to pay off anything the borrower wants or to let it grow in a credit line. Left alone in the credit line, that $197,000 would be worth at least $237,000 in 5 years or $284,000 in 10 years. In fact in 15 years, that credit line would be worth more than the current home's value- that's pretty significant because it would guarantee a borrowers access to cash regardless of their future home's value. What institution or entity can guarantee future cash access like that and allow you to retain title to your home other than Uncle Sam?
A 75 year old borrower could get a cash return of $236,000 or $1524 a month for as long as they live in their home. That $236,000 could be $283,000 in 5 years or $339,000 in 10 years. That is roughly 67% of the home's value.
The costs to get access to this much money breaks down to the following: 2% of the first $200,000 ($4000) plus 1% of remaining $150,000 ($1500) for a total of $5500. There is a cap for the origination fee of $6000. The MIP or mortgage insurance premium is 2% of the lesser of the home's value or the nationwide lending limit of $417,000 and in this case it is the former (or $350,000). So the MIP will be 2% of $350,000 or $7000. The other closing costs are related to the same relative real estate closing costs and they range from $2500 to $5000 depending upon each state's requirements which could include recordation taxes. That overall total could be from $15500 to $17500. Closing costs are usually financed into the loan.
Bottom line, the older a borrower the larger percent of their home's equity they can gain access to with a reverse mortgage. As the examples above show a range of 55% to 65% of their home's value, its possible that a 90 year old can get access to 80% of the value of their $350,000 home. For other scenarios, feel free to contact us at www.todaysseniors.com.