Determining How Much a Reverse Mortgage Lender Will Lend
Perhaps you've heard by now, perhaps not, but lenders, as of November 6, 2008 could begin closing reverse mortgages with the new higher lending limits in place.
At $417,000 the new national loan limits, in most parts of the country, absolutely bury the old limits by more than twice the former amount. It's quite a boon, but how does this affect the average borrower?
One could liken the lending limit to the actual value of a home and as a starting point to determine how much money the lender will actually allow the senior to borrow. If the value of the home exceeds the lending limit ($417,000), the borrower receives no additional benefit.
Don't forget, the lender is using the house and it's equity as security for the mortgage. The value of the home, or the FHA insurable limit, is the first and most important determination as to how much a borrower can receive.
The other vital derminants of the cash out amount are the age of the youngest borrower and interest rates.
Intuitively, one can understand how age plays a role. Mortgage companies work similar to insurance companies in that they want to know when the borrower is "checking out". Knowing these numbers helps them make informed decisions.
Even with FHA mortgage insurance in place lenders do not want to be in a position where more is owed on the mortgage than the value of the home. That being the case the lender will lend far more to the senior, whom the the actuarial tables say will be out of the home in 2013 as opposed to the borrower who will be out in 2024.
Interest rates are thought of in a similar manner. The greater the interest rate, the quicker the accrual of interest will eat away at the security for the mortgage. Therefore, lenders lend more to prospective borrowers as rates go down than the vice versa.
People often say to me, "What percentage of my value am I going to get?" There is no percentage. All three variables need to be input into the formula and out will come the number.
Without the formula we can only take a good guess. Today the oldest borrowers will get seventy five to eighty percent of the value of the home. The youngest ones, about fifty percent.
At $417,000 the new national loan limits, in most parts of the country, absolutely bury the old limits by more than twice the former amount. It's quite a boon, but how does this affect the average borrower?
One could liken the lending limit to the actual value of a home and as a starting point to determine how much money the lender will actually allow the senior to borrow. If the value of the home exceeds the lending limit ($417,000), the borrower receives no additional benefit.
Don't forget, the lender is using the house and it's equity as security for the mortgage. The value of the home, or the FHA insurable limit, is the first and most important determination as to how much a borrower can receive.
The other vital derminants of the cash out amount are the age of the youngest borrower and interest rates.
Intuitively, one can understand how age plays a role. Mortgage companies work similar to insurance companies in that they want to know when the borrower is "checking out". Knowing these numbers helps them make informed decisions.
Even with FHA mortgage insurance in place lenders do not want to be in a position where more is owed on the mortgage than the value of the home. That being the case the lender will lend far more to the senior, whom the the actuarial tables say will be out of the home in 2013 as opposed to the borrower who will be out in 2024.
Interest rates are thought of in a similar manner. The greater the interest rate, the quicker the accrual of interest will eat away at the security for the mortgage. Therefore, lenders lend more to prospective borrowers as rates go down than the vice versa.
People often say to me, "What percentage of my value am I going to get?" There is no percentage. All three variables need to be input into the formula and out will come the number.
Without the formula we can only take a good guess. Today the oldest borrowers will get seventy five to eighty percent of the value of the home. The youngest ones, about fifty percent.
About the Author:
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posted by Debt Consolidation Loan at
10:36 PM
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