The big housing bailout bill, signed July 30, also raised FHA national lending limits. In November, lenders began closing loans with the new limits.
The new limits in most parts of the country are $417,000. This is an increase by as much as two times in many of these same areas. So, what does this mean?
Of the multiple factors entering the equation determining the value of the home, or the FHA insuraable loan limit, is of vital concern as the reverse mortgage lender uses this dollar figure and related equity as security for the mortgage.
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.
Interest rates and age of the youngest senior who’s name will be attached to mortgage are the other determing factors.
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.
Forward lenders today have the serious problem of more being owed than the home is actually worth. Reverse mortgage companies fear the exact same problem on the tail end of these mortgages. Therefore the borrower, who will likely pass on earlier rather than later, will be loaned more money.
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.
The prospective reverse mortgage candidate really needs to plug in all three of these variables into the formula to determine how much money he or she will qualify to receive. There are no hard numbers.
Based upon interest rates today the average borrower, aged 62, will receive roughly half of their home’s value, or the lending limit, whichever is less. A borrower, aged 90, will get about 75%. For ages in between you can extrapolate from there.