ARLO™ Reverse Mortgage Calculator | HECM Calculator (2024)

Table of Contents

A reverse mortgage calculator uses several key factors to determine the loan amount: the borrower’s age, the home’s value (or the HUD lending limit if it’s lower), and current interest rates. The Department of Housing and Urban Development (HUD) provides a table called the Principal Limit Factors, which sets the loan-to-value ratio based on the expected interest rate. This ratio is applied to the lower of the home’s value or the HUD lending limit to calculate the total loan amount available, known as the Principal Limit. This calculation helps homeowners estimate the amount they can receive, aiding informed financial decisions.

Interest rates play a crucial role in determining the loan amount a borrower can receive. The Department of Housing and Urban Development (HUD) sets a baseline interest rate called the “Floor rate,” currently at 3%. If the expected interest rate is at or below this floor, borrowers are eligible for the maximum loan amount based on their age and property value. However, the loan amount decreases if the expected rate exceeds this floor. Higher interest rates reduce the available funds to the borrower, significantly affecting the financial benefits of a reverse mortgage.

The growth rate for a HECM line of credit increases the available funds over time. It is calculated by adding the current interest rate to the mortgage insurance premium rate, currently 0.50%. This combined rate is recalculated each month based on the remaining unused balance. For example, if you have $75,000 unused in your line of credit and the interest rate is 4%, the total growth rate would be 4.5%. This means your line of credit would grow by $281.25 for that month, calculated by applying the annual growth rate of 4.5% to the $75,000 and dividing by 12.

Monthly payments on a reverse mortgage depend on several factors: the total loan amount, the age and life expectancy of the youngest borrower, the current interest rate, and the length of the chosen payment plan. Borrowers can choose a “Tenure” plan for guaranteed monthly payments for life as long as they live in the home and keep the loan active. Alternatively, a “Term” plan specifies a set period, such as 15 years, after which no further payments will be made. Generally, the older the borrower, the higher the monthly payments. Longer payment periods result in smaller monthly amounts. Consult with a lender for specific monthly payment calculations based on your circ*mstances.

HUD guidelines determine the lump sum amount for a reverse mortgage. It includes covering all mandatory obligations like closing costs and existing debts against the property, plus an extra 10% of the Principal Limit or 60% of the Principal Limit—whichever is greater. For example, if a borrower’s Principal Limit is $100,000 with no liens and $7,000 in closing costs, they could receive a lump sum of $53,000 after calculating a starting loan balance of $60,000 (60% of the Principal Limit). If an outstanding mortgage is $75,000, the maximum starting loan balance would be $92,000. The availability of any funds beyond the initial amount depends on the loan type: a fixed-rate loan offers a one-time lump sum at closing, while an adjustable-rate loan places any excess into a line of credit, accessible after 12 months.

Guide to Choosing the Right Reverse Mortgage Calculator

This chart outlines the variety of calculators from All Reverse Mortgage, tailored to your needs for reverse mortgages. It's arranged with four easy-to-understand sections: the type of calculator, its purpose, its features, and information on whether it includes rates and APR details.

Do you need assistance or have any questions about which calculator to use? Don't hesitate to reach out to us. Our expert team is just a phone call away at (800) 565-1722, ready to offer you tailored advice and support.