Estimating a Reverse Mortgage Balance
This calculator can be used to develop an estimate of the balance of a reverse mortgage over time. The calculator needs a total of four inputs, including:
- Any lump sum received as part of the reverse mortgage process
- The annual rate of interest charged on the money being dispensed
- The term of the reverse mortgage, stated in years. This is the timeframe over which payments will be made to the borrower
- The monthly payment received as part of the reverse mortgage
The calculator then provides the user with one set of five outputs:
- The outstanding balance on the reverse mortgage, broken down into five evenly spaced-out timeframes along with a graphical representation of this information
Note: Hovering over any of the bars in the chart also provides you with information on the balance of the loan.
Caution: This calculator provides an estimate of how fast a mortgage balance grows over time. This calculator does not determine the line of credit or lump sum payment based the user’s age and HUD rules. The inputs gathered from other tools should be used to determine the lump sum advance, rate of interest charged, monthly payment, and the mortgage’s term.
What is a Reverse Mortgage?
Also referred to as a home equity conversion mortgage (HECM), a reverse mortgage is a home loan for owners that are age 62 or older. Much like a traditional mortgage, a reverse mortgage allows borrowers to use their home as security for a loan. The home also remains the property of the owner, and the title to the home remains in the owner’s name. The difference between a traditional mortgage and reverse mortgage has to do with monthly payments. With a traditional mortgage, the borrower makes monthly payments to the lender. With reverse mortgage, the lender makes monthly payments to the borrower. As is the case with a traditional loan, homeowners with a reverse mortgage are required to pay property taxes and carry homeowners insurance.
Since the borrower is being paid by the lender each month, the outstanding principal of the loan, also referred to as the loan’s balance, grows over time. This growth not only includes the monthly payments received by the homeowner, but also interest and fees associated with the loan. Finally, since the homeowner is borrowing money against the equity they have in their home, the equity in their home will decrease over time – unless the property experiences a rise in value that outpaces the growing balance of the loan.
Qualifying for a Reverse Mortgage
As previously mentioned, the homeowner must be at least ag 62 to qualify for a reverse mortgage, some of the other qualifying requirements include:
- The home being the borrower’s principal residence
- No mortgage on the property or a low balance that is paid off at the time a reverse mortgage is obtained
- The borrower cannot have any federal debt, such as a student loan or unpaid income taxes
- The home itself must be in good shape and certain repairs might be required before writing the loan
- Counseling from a HUD approved agency to understand the implications of the loan and to discuss alternatives
Interpreting the Results of Our Calculator
The two important points to remember are the calculator provides you with an estimate of how fast the balance of your mortgage grows over time. It is not used to determine the line of credit you’ll be offered or if you qualify for a lump sum payment. This calculator basically works like a more traditional mortgage calculator, but in reverse. Instead of the principal of the loan decreasing over time, it increases. Our calculator summarizes that growth into five evenly spaced timeframes, with the last timeframe representing the term of the loan.