If you’re interested in a reverse mortgage, you’re probably wondering exactly how much money you’ll gain. Is the transaction worth it? Will you benefit from it? Let’s take a look at how much money you may gain and how to calculate a reverse mortgage.
The exact amount you’re eligible to borrow depends on how much equity you have readily available. Typically, you can only use up to 80% of your home’s equity based on its current appraised value. Alongside equity, the exact amount you’re able to be paid from a reverse mortgage also depends on your age, credit, and your interest rate.
While you can choose how you want the loan amount to be paid out when you’re approved for a reverse mortgage when you’re wondering how to calculate a reverse mortgage don’t overlook your payout method. Your payout method will contribute to how much you can get from a reverse mortgage in the end.
From a glance, getting paid out in one lump sum instead of monthly payments may seem to not make a difference. But, it can affect the principal amount of your loan. Receiving your entire reverse mortgage in one lump sum payment may mean you’re giving up some money in the future. When you choose a fixed monthly payment or a line of credit, you have the ability to receive a payout if the value of your home increases over time. However, when you receive one lump sum at the beginning, the opportunity for receiving a higher payout is usually taken off of the table.
While considering how to calculate a reverse mortgage, you must consider the costs required to begin the process. Reverse mortgages may include expenses such as origination fees, interest on the loan, set aside fees, and other closing costs. Set aside fees are fees that cover any necessary repairs, as well as an appraisal of your home. Depending on your location, pending complications, and the size of your home, appraisals can cost anywhere from $250 to $1,000.
While the interest of your reverse mortgage is usually assessed and paid at the end of your loan term or when your home is sold, it is still a cost you must account for. Interest rates fluctuate over time. If your interest rate is 6%, you’ll be charged 6% of the loan value for that year.
The origination fee is the cost due to your mortgage lender for the service of processing your loan. Typically, the origination fee is 2% of the first $200,000 of the value of your home. Any amount above $200,000 is usually 1%. If the value of your home is $125,000 or less, your origination fee will usually not exceed $2,500.
We hope that this blog was able to assist you if you were wondering how much you can borrow from a reverse mortgage or trying to calculate a reverse mortgage amount. Cheers to a happy retirement!