Calculator Considerations

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Below is an article on the information about the reverse mortgage calculator. The challenge I have is that these calculators are programmed with certain assumptions that can vary depending on many factors:

Who provided the calculator? Different lenders and agencies use different algorithms and information can vary

Your age and your spouse’s age — programmed into these calculators are your expected ages based on actuarial tables, however, people are living much longer with each new medical discovery and increased uses of holistic options.

The good news is that the older you are, the more money you can access. So if the calculators are being very conservative in your life span projections, you will get less money at closing BUT since your credit line grows every year, you will have the ability to tap into your equity again and again.

What the calcuators cannot guestimate is your home value down the road. Here’s the good news. If you get your loan today, and your home value does decline, you’ll have accessed MORE of your equity than you might have 6 months or a year down the road. And remember, since your HUD insurance guarantees you cannot ever owe more than the value of your home, you ARE protected regardless of what happens to your home value.

So what’s the bottom line? It is this: regardless of what the calculator computes for amount of money you may receive, regardless of market conditions down the road, if you have an adjustable HECM, your credit line grows annually AND again, you can never owe more than the value of your home.

Important Consideration: If you choose a non-FHA loan, calculations and loan guarantees and protections are very different. So are loan requirements — in some cases you are required to take the entire amount of the loan at closing with these loans. That means you are PAYING INTEREST on the entire amount from day one and that also means your equity will be reduced much more quickly.
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While a free reverse mortgage calculator might be able to give you an idea of how much you could borrow, none will be able to tell you something that is far more important, and that is how much equity will be left in your home after a period of years. It’s crucial you are aware of this before you make any decision on whether to opt for this type of loan.

There are a number of calculators to be found online. However, you may find that the amounts illustrated differ from one website to another, even when the same dates and amounts are entered. If you are going to opt for either a Fannie Mae or FHA reverse mortgage, then the best (and free) reverse mortgage calculator can be found at either the AARP or National Reverse Mortgage Lenders Association (NRMLA) websites. Both are accurate, display identical figures and display most of the crucial information, such as how much you’d receive as a fixed monthly payment, a line of credit (and how much that line of credit would appreciate over 5 and 10 years for the FHA program) or how much you’d receive as a one-off lump sum.

But, if you opt for a jumbo program, you’ll need to use that company’s proprietary calculator. These calculators also give you the FHA and Fannie amounts though they tend to be slightly less accurate. The Financial Freedom calculator is the most widespread.

A reverse mortgage calculator works by using the equity value of your home, its location, your age (and partners), and current interest rates. It then performs the calculation and gives you an indicative illustration of what you’d receive.

What it won’t tell you is how much equity would be left in your home after a number of years. This is important. How this type of loan works is that the lender agrees to pay you a fixed amount over a period of time – usually as monthly payments. When you no longer live in your home, sell it or die, the loan – in its entirety – must be paid back. This is usually done by selling the home. Any money left after the loan is paid you get to keep.

However, the amount you will receive depends on two things; house prices (how much you could sell your home for in future years) and interest rates.

If house prices fall, you or you heirs would receive less money from the sale of your home or even none at all. Likewise a rise in interest rates would also be detrimental.

No calculator illustrates these two, what-if scenarios. Therefore, when using one, be aware that it will show you what you’ll receive but not the amount of loan that will have to be paid back in say 5, 10 or 15 years from now.

This is why you should speak to your local originator (broker) as soon as possible. Don’t be blinkered by what you get now, but think about what you’ll be left with in years to come. And, don’t say it doesn’t matter because you intend to stay put in your home until you die and you don’t care about your heirs; circumstances change. You must put some thought into this aspect of your reverse mortgage right from the start. It’ll be too late after you take it out and are receiving money.

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