Loan Amounts Available on a Typical Reverse Mortgage

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Loan Amounts Available on a Typical Florida Reverse Mortgage

In the following sections we detail Reverse Mortgage loan amounts, fees and interest expenses for a fairly typical homeowner.
 HECM
(Variable Interest Rate)		HECM
(Fixed Interest Rate)
 
Maximum Loan Principal (loan principal limit):$106,000*$114,000
* On a $200,000 house owned by a 70 year old retiree; this amount will also vary based on company margin and current interest rates.

The Fees Associated with a Reverse Mortgage and the Actual Funds Available to the Homeowner

Now that we have an initial starting point for this Reverse Mortgage, we can calculate the various fees this sample client could expect to finance in the loan.

Reverse Mortgage Fees

 HECM
(Variable Interest Rate)		HECM
(Fixed Interest Rate)
 
Origination Fee:$4,000$4,000
Mortgage Insurance Premium:$1,000$5,000
Third Party Closing Costs (est):$2,298$2,298
 
TOTAL FEES:$7,298$11,298
 
Loan Amount After Fees:$98,702$102,702
An explanation for each fee follows below:

  • Origination Fee:

    The Origination Fee is the upfront fee charged by the Reverse Mortgage lender to initiate the loan. The entire amount of the origination fee may be financed as part of the mortgage.

  • Mortgage Insurance Cost:

    Mortgage insurance costs are unique to the HECM product. HUD guidelines require that all HECM Reverse Mortgage borrowers receive Reverse Mortgage insurance, which guarantees that you will continue to receive benefits no matter what happens to your investor and ensures you will never owe more than the value of the home at the time you repay the Reverse Mortgage.

  • Third Party Closing Costs:

    Third Party Closing Costs represent a number of services that may need to be undertaken before the Reverse Mortgage can be finalized. These can include appraisals, title searches, surveys, inspections, recording fees, local, state, and federal mortgage taxes, and credit checks. As these fees vary from place to place and by vendor; the amount quoted above is an approximate average.

Paying Off Existing Liens – No More Monthly Mortgage Payments

For many borrowers, the number one benefit of securing a Reverse Mortgage is eliminating ongoing traditional mortgage payments. If you have an existing mortgage – or any other liens against your home – these must be paid off using the funds from your Reverse Mortgage. You may not have both a traditional mortgage and a Reverse Mortgage at the same time.
Eliminating your traditional mortgage payments can be an excellent way to improve your monthly cash flow in retirement.
In this example, the $50,000 mortgage is paid off – leaving a sum of money that can be used as the homeowner sees fit – depending on the type of loan that has been chosen.
 HECM
(Variable Interest Rate)		HECM
(Fixed Interest Rate)
 
Net Principal Limit (Net balance after fees)$98,702$102,702
Less Current Debt Payoff$50,000$50,000
Remaining Money$48,702$52,702

Cash Available to Borrower After Fees and Payoff of Liens

Following the deduction of the upfront fees and the payoff of the existing mortgage (a Reverse Mortgage borrower must always pay off any existing mortgages and other liens against the home), the borrower in our Reverse Mortgage example is left with the following amounts available in the form of lump sum cash or line of credit.
 HECM
(Variable Interest Rate)		HECM
(Fixed Interest Rate)
Remaining Money After Fees and Payoff of Liens$48,702$52,702
Less Upfront Cash$0$11,400
Fixed-Rate Unusable Fundsn/a$41,302
Less Selected Creditline$48,702$0
Initial Creditline Growth Rate+3.919%n/a
 
Available In First Year$6,302$0
Available After First Year$42,400$0
The amount of cash available and when it is available to a Reverse Mortgage borrower varies depending on the type of loan you receive.
Adjustable Rate: With an adjustable rate Reverse Mortgage loan, the borrower must put all funds that are available after the payoff of liens into a line of credit or a tenure (monthly payments).
The advantage of a line of credit is that you only pay interest on the funds you withdraw, not the total amount that is available to you. And the money in the line of credit actually EARNS interest.
In this example, the borrower has a total of $48,702 in money available to them – to be used in anyway they wish. However, this borrower is only allowed to withdraw $6,302 (60 percent of their loan principal limit) in the first year of the Reverse Mortgage. The remaining $42,400 (plus interest earned) can be tapped thereafter.
Fixed Rate: With a fixed rate loan, the cash you can access from the loan is more limited. If you opt for a fixed rate loan, you are only allowed to withdraw 10 percent of your principal limit. (In this example, 10 percent of $114,000 which is $11,400.)
The unusable funds will just remain as home equity.

Monthly Payments Available to Borrower After Fees and Payoff of Liens

Instead of cash, a Reverse Mortgage borrower may opt to receive monthly payments for their lifetime – but only if they opt for the adjustable rate loan. Monthly payments are not available for the fixed rate Reverse Mortgage.

 HECM
(Variable Interest Rate)		HECM
(Fixed Interest Rate)
Remaining Money After Fees and Payoff of Liens$48,702$52,702
Monthly Lifetime Cash Payments$312n/a

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