Forbes Takes Deep Dive into Reverse Mortgage Eligibility

In what has been a series of articles on various reverse mortgage related topics over the past few weeks, this time Forbes takes aim at the nuts and bolts of determining a borrower’s eligibility for Home Equity Conversion Mortgages.

There are several key requirements prospective borrowers must espouse to become eligible for a reverse mortgage, such as being at least 62 years old, undergo mandatory HECM counseling, have no outstanding debts, have equity in their home (or a mortgage balance that can be paid off), as well as exhibit the financial wherewithal to cover ongoing costs of property taxes, homeowner’s insurance and property maintenance expenses—to name a few.

While this criteria may determine a person’s eligibility when applying for a reverse mortgage, the other question of eligibility pertains to just how much loan proceeds a borrower may receive from his or her reverse mortgage.

Advertisement

In a Forbes article this week, retirement and reverse mortgage researcher Wade Pfau of McLean Asset Management in McLean, Va., and The American College in Bryn Mawr, Pa., explained the meaning of three key terms in reverse industry jargon, including principal limit factors, the expected rate and the effective rate, and how each of these components link together when determining how much a borrower receives from a reverse mortgage.

“We need to understand how to calculate the initial principal limit when the reverse mortgage is opened, as well as how to understand the way that the principal limit grows over time,” Pfau writes. “The initial principal limit is calculated with the expected rate, while principal limit growth is calculated with the effective rate.”

Pfau goes on to define the relationship between these different components, providing several scenarios and graphs to also show the impact of interest rates and how they, coupled with the ages of borrowers and their spouses, affect the amount of loan proceeds that can be paid out of a reverse mortgage.

Read the Forbes article.

Written by Jason Oliva

string(101) "https://reversemortgagedaily.com/2016/02/24/forbes-takes-deep-dive-into-reverse-mortgage-eligibility/"

Share your opinion