Reverse Amortization Calculator – Reverse Mortgage Calculator
If you are thinking of getting a reverse mortgage, it is imperative that you fully understand the terms and conditions. One of the crucial factors to determine is the amount of loan that you will be eligible for getting from the mortgage. This is crucial because it will enable you to gauge whether entering into this agreement will be beneficial to you financially and will address current needs for cash at the moment. If hiring the services of a financial adviser is out of the question or something that is still premature, one way for you to determine the possible amount you can get from your lender is by using a reverse mortgage calculator.
This very useful tool, also referred to as reverse amortization calculator, is actually a software that takes into consideration the basic elements used by reverse mortgage lenders to compute how much money they can grant you, the applicant. These standards include the home location, value, the amount of mortgages existing, the mortgage payments, current interest rates and the birth dates of the borrower and co-borrower should there would be more than one. Among these, the most vital elements looked at by lenders are the equity in the home and the age of the borrower. Location is also vital since the amount that can be loaned will be based on whether a property is in a rural or urban area.
The tools can be found online, however the results would not be definitive as it is only an estimate. Without necessarily hiring a financial adviser, you can actually do the calculation yourself as it is not that complicated to do. The first step is getting all your facts together. The most important things to know is the value of your property and the mortgage payments or balance should there be any. Then, follow these steps:
DIY Reverse Amortization Calculator
1. Get Your Facts Ready
It is vital that you have a certified appraisal of your property value since this will be a primary factor in the calculation. Another fact that needs to be accurate is the interest rate. So update yourself with the current reverse mortgage interest rates within your area as these may vary depending on the financial institution that you are planning to apply with. You will also need to have an idea about the closing costs a reverse mortgage lender will impose for the transaction since these will be deducted from the amount you will borrow. Taxes are generally not charged on this type of loan as it is not considered income. Therefore, it would be safe not to consider them in the calculation.
2. Select A Payment Option
There are several payment options that you can opt for when getting a reverse mortgage. You can have the loan released as a lump sum payment, on fixed monthly payments, for 10 years, or for as long as the borrower occupies the home, as a line of credit or a combination of monthly payments and a line of credit.
3. Compute Possible Income
Your possible income is based on so many variables that it is best to allow your financial advisor to calculate your reverse mortgage for you. However, if you have Microsoft Excel or a similiar program, you can estimate your monthly income. Simply insert the following code into one of the cells:
=Pmt( interest_rate, number_payments, PV, 0, 0)
Where:
interest_rate = the current interest rate
number_payments = (your life expectancy – your current age) / 12
PV = your estimated property value
The calculation provided above is just one basic way in coming up with the possible amount that you can get in a reverse mortgage. Choosing for instance, a lump sum payment, will involve a new sets of variables. In short there is no one formula that could deal with all of the scenarios. This is why you ultimately will have to discuss the different scenarios with a financial advisor. They will be able to input the basic data, check out the latest rates as well as input other possible charges like origination fee, insurance premium, appraisal fee, and closing fee.
A prospective borrower must arm himself with the basic knowledge of the transaction. Possessing a good estimate that you have calculated on your own will allow you to raise questions to your adviser later on that will further clarify your understanding about reverse mortgage loans. It will all depend on you at the end, so the more you are informed the better the chances that you will arrive at a decision that will be beneficial for all parties.
