Cerritos Reverse Mortgage Question - What’s the Loan To Value on a Reverse Mortgage?I get this question all the time. I know that most folks are hoping to hear a number from me like 60%, 80% even 100% of loan value, but that’s just not the way it works.
The loan amount (or principal limit) on a reverse mortgage is based upon a formula provided by HUD which factors in three elements: AGE, HOME VALUE & EXPECTED RATE.
AGE - The age of the youngest borrower is used in the formula as a factor. All borrowers must be over 62, but an older borrower will qualify for a higher loan amount than a younger borrower.
The reasoning for this is based upon life expectancy. A younger borrower needs a bigger cushion of equityto allow for the eventual repayment of the loan.
HOME VALUE - The higher the loan value, the higher the loan amount up to and including a maximum home value of $625,500. This doesn’t mean if your home is worth more you can’t get a reverse mortgage. It just means that if you are getting a HECM the calculations will be done as if your homes value was $625,500. If your home is worth considerably more than that you may want to research a Jumbo Reverse Mortgage which offers many of the same features and protections of the HECM.
EXPECTED RATE - Not the interest rate on the loan itself, the Expected Rate is just that, what the borrower can “expect” the interest rate to average. Easy to figure on the fixed rate reverse as it matches the interest rate on the loan. It’s a bit more complex on the adjustable. The expected rate for an Adjustable HECM is figured on the 10 Year Libor Swap and the Interest on the loan is figured on the 1 Month Libor index.
I hope that you found this information helpful! Here’s how to get your own Reverse Mortgage Information Kit.
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By Deborah Nance
Your Local Southern California Reverse Mortgage Professional
