One avid retirement researcher has recently developed a new calculator that allows prospective reverse mortgage borrowers to find out the principal limit available to them through a Home Equity Conversion Mortgage (HECM).
The HECM calculator is the latest effort from Wade Pfau, professor of retirement income at The American College, who has produced a series of articles, webinars and research on using reverse mortgages and retirement income planning in recent weeks.
The calculator requires users to input information regarding their home’s appraised value, the 10-year LIBOR swap rate, lender’s margin, age of youngest spouse, among other factors, to calculate the net principal limit that borrowers may be eligible to receive.
To determine the total upfront costs, inputs such as the “Loan Origination Fee” and “Other Closing Costs” are combined with the predetermined cost for the Initial Mortgage Insurance premium, Pfau writes in a recent Forbes article detailing the launch of the calculator.
Additional inputs ask users for the “Percentage of Upfront Costs to Financed” by the loan, which Pfau notes would be 0% if costs are financed from other sources; 100% if fully financed by the loan, or any number in between.
The final input is the amount of “Life Expectancy Set-Aside” requirements that have been determined as part of the Financial Assessment.
Finally, the calculator provides the net amount of loan proceeds available as either tenure or term payments, which are both provided as monthly and annual values.
Pfau’s calculator determines tenure payment assuming a planning horizon of age 100 and the expected rate, plus the ongoing mortgage insurance premium.
The term payment is calculated for a fixed term, though Pfau notes that if the desired number of years for the term payment should extend beyond age 100, the term payment is automatically adjusted to be the higher value of the tenure payment.
Read more at Forbes.
Written by Jason Oliva