Reverse Mortgages (RM) are becoming an essential tool to fund retirement. A RM allows those 62 and older to access a percentage of home equity to primarily eliminate a mortgage payment and secondarily have access to cash. Money can be received in a lump sum payout, monthly payout, it can be left in a guaranteed Line of Credit, or a combination of these methods. Many looking into a RM may wonder how does the FHA determine how much money I qualify for on this product? There are 3 main factors used in determining how much money you will have access to: the appraised value of your home, your age, and the current interest rates.
The percentage you can access out of your home is based off the appraised value you receive from an FHA appraisal. For example, if your home appraises for $500,000, the basis for your RM qualification is $500,000, of which you will receive a percentage based on the youngest borrowers age and the current interest rates.
If there are 2 or more people on the RM, the youngest borrower’s age will help determine the amount of money that can be accessed out of your home. For example, if your appraised value, or basis is $500,000 and the youngest borrower is 62, you would have access to over $251,000 of the equity. If it appraises for $500,000 and the youngest borrower is 82, you would have access to over $326,000. The older you are, the higher percentage of equity you can access.
Interest rates have a great affect on the money you can take out of your home with this FHA insured product. When rates go up, the amount qualified for on a RM goes down, when rates go down, the amount qualified for on a RM goes up.
A RM qualification is fluid and constantly changes until you close your RM. Once the loan funds, your qualification amount is guaranteed and set. The money you qualify for cannot be taken away no matter what happens to future home values or interest rates. According to the Federal Housing Finance Agency, nationally, we have now surpassed the home values before the crash of 2007-8. Interest rates are still low, but will be rising as the Fed continues to raise the Federal Funds rate in 2016, which cnn-money predicts it will be raised 4 times in 2016. Now that you understand how a RM qualification is calculated, you can understand that right now is a great time to protect your home equity with a RM. Even if you don’t need the money now, you can leave your qualification in a RM line of credit that is guaranteed to never be taken away. In fact, any money left in here actually grows (currently can grow at 5.401%) until you pull the funds out and there is no interest charged on the money until it is withdrawn from the RM LOC. To see what you qualify for today call us at (877) 567 -7476 or check yourself on our RM calculator HERE.