The following example is based on a single individual who is 75 years old. The borrower owns a home that is valued at $380,000 and resides in Connecticut. The table that is provided below displays the maximum line of credit without including any monthly income. The chart also displays the presence of a monthly income with no credit line. These numbers represent what could be available following all mortgage payments and the paying of any liens that are against the home. There is no inclusion of home repairs that may be needed.
The programs that are mentioned will allow the homeowner to distribute money between a monthly income and a credit line (i.e account for cash). Fannie Mae offers the Home Keeper Mortgage and the Home Equity Conversion Mortgage, or HECM is insured federally.
| The Borrower Could Receive | Monthly Adjusting HECM | Annual Adjusting HECM | Fannie Mae Home Keeper |
|---|---|---|---|
| 1. Lump sum advance of | $212,548 | $176,161 | $155,758 |
| 2. Credit line that will increase annually | $212,547 | $176,161 | $155,758 |
| The credit line will increase by | 7.14%* | 8.94%* | 0% |
| When unused, the available credit in 5 years | $302,815 | $271,735 | $155,758 |
| Available credit in 10 years | $431,417 | $419,163 | $155,758 |
| 3. Monthly loan advance for the time the client resides in the home | $1,520 | $1,437 | $1,355 |
| Combination of any mentioned options1 | – | – | – |
* – The growth rate of the credit line is based on current interest rates. The actual growth will vary with any changes to the rates.
1 – the borrowing options which can be combined or mixed are: lump sum when the mortgage is closed, line of credit and a monthly loan advance.
Summary of Reverse Mortgage Projection Calculations
The following chart displays how estimates for HECM and HomeKeeper reverse mortgage programs are projected.
In the below example, the loan rate will equal the current rate index of a 1-Year Treasury. This is in addition to a lender’s margin. Currently, that margin is 1.4% for all monthly-adjusting HECMs. There is also 0.5% for the insurance on the mortgage. The Growth Rate in the credit line from HECM will remain equal to the total periodic rate that is being charged on the balance of the loan. The growth rate will also reflect the monthly compounding of interest.
| Loan Calculations | Monthly Adjusting HECM | Annual Adjusting HECM | Fannie Mae Home Keeper |
|---|---|---|---|
| Current rate lending index | 3.9% | 3.9% | 4.1% |
| Profit Margin of Lender | 1.4% | 3.0% | 3.42% |
| Current Loan Interest rate | 4.5% | 6.1% | 6.6% |
| Mortgage Insurance | 0.50% | 0.50% | — |
| Current Effective Int. Rate | 5% | 6.7% | 6.750% |
| Growth Rate in Credit Line | 7.34% | 9.06% | 0% |
| Cap on Effective Loan Rate | 15.10% | 11.70% | 18.75% |
| Home Assessment | $380,000 | $380,000 | $380,000 |
| Lending Boundary | $344,651 | $344,651 | $396,150 |
| Lesser of Boundary or Home Assessment | $344,651 | $344,651 | $380,000 |
| Loan Principal Limit | $234,707 | $197,829 | $170,624 |
| Minus Loan Fees to Lender | $6,893 | $6,893 | $7,600 |
| Minus Mortgage Insurances | $6,893 | $6,893 | $0 |
| Minus Other Closing Exp | $4,389 | $4,389 | $3,989 |
| Minus Service Fee | $3,984 | $3,494 | $3,276 |
| Cash Available | $222,048 | $176,161 | $155,758 |
| Minus Liens on Home | $0 | $0 | $0 |
| Minus Needed Repairs | $0 | $0 | $0 |
| Minus Other Cash | $0 | $0 | $0 |
| Minus Desired Credit Line | $0 | $0 | $0 |
| Total Left for Monthly advance | $222,048 | $176,161 | $155,758 |
| Monthly advance | $1,520 | $1,437 | $1,355 |
| Credit Line in 5 years | $0 | $0 | $0 |
| Credit Line in 10 years | $0 | $0 | $0 |
All of the above projections are based on interest rates from HECM and servicing fees at the time of the analysis and closing costs are predicated on the national average. The exact loan proceeds will be contingent on the rates that are current at the time the loan is executed. The proceeds will also be contingent on what the home has been appraised at and what equity limits are in place. All rates are subject to change throughout the year.
Click here (reverse mortgage tax-free income) to see how much tax free income you could potentially get with your house.