Home Equity Conversion Mortgage (HECM) program is the most popular of the reverse mortgage program due to the fact that this program is attested and backed by the federal government. The reverse mortgage rates under the HECM model are less expensive compared to other programs in the market. This is because of the government participation as well as the strict eligibility criteria that qualifies an individual for the program. While there is no set structure that can turn up the average mortgage, the calculation of the eligible amount depends on the four important factors such as the borrower’s age, the net value of the property, the current market interest rates, and the pre-approved loan amount sanctioned for the county.
The main factor that determines the eligible amount is mainly the mortgage limit that has been approved by the Federal Housing Administration (FHA) for the respective counties, as a result of which the rates may vary greatly between some areas.
The eligibility amount for a reverse mortgage loan is the comparison between the appraised value of the property and the FHA mortgage limit. The lesser of the two amount is factored as the eligible amount and the current 10-year LIBOR swap rate as well as the lender’s margin is added to calculate the expected rate. Adding in the age of the youngest eligible spouse will result in the Principal Limit Factor (PLF).
To calculate the total upfront loan cost, the loan origination fee along with the extra costs associated with closing should be included with the initial mortgage insurance premium amount. It is essential to consider how much the individual would be able to afford for the upfront cost associated with the finance because some people may source this cost outside the loan. While others may be fully dependent on the loan or may require only a certain percentage of the loan dedicated towards this cost. The last calculation would be to factor in the life-expectancy requirements that have currently been deemed essential to calculate the financial assessment of the borrower. The final step after the separate determinations would be to calculate the HECM credit, that is available for the mortgage loan by adding the PLF, the costs and the set asides.
Accordingly, a borrower would be able to determine the net amount that would be available to them in the form of either tenure or term payments. Based on the individualistic needs, one can chalk up a payment method that would suit their financial situation. In order to understand the intricacies involved, one can always get the aid of a reverse mortgage counselor for better clarity and planning of the loan.
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