How is the interest on reverse mortgages computed? And why should I be educated on this? When applying for a reverse mortgage, you need to be aware of the best rate in the market because it will affect you in the long term.
How is the interest on reverse mortgages computed?
Reverse mortgage interest rates are computed depending on the following factors:
- Your age. If it can be helped, don’t try to apply for a reverse mortgage too early unless you really need it as soon as you reach 62 years old (which is the minimum age requirement to apply for a reverse mortgage). Financial experts suggest not to apply too soon because the older the reverse mortgage borrower is, the bigger the proceeds that he is going to get.
- Home’s equity. As a rule of thumb, you cannot borrow more than 80% of your home’s equity. Your home will be appraised to know the current value, and you only get the maximum 80% or sometimes even less than 80%.
- Existing mortgage. If you have an existing mortgage, you can still qualify even if you are not fully paid. You need to make the reverse mortgage your first lien position. What does this mean? This means that you need to pay off the first mortgage by the proceeds of your reverse mortgage or from other means – money from family, savings, or other means.
Older age, higher home value appraisal, lesser lien, and lower interest rates – these are some of the factors that will come into play when you apply for a reverse mortgage. The best way to know how much you can get from your reverse mortgage and have it tailored fit for your needs is to talk to a mortgage professional. We can help you navigate your way around to understand better how to take advantage of the reverse mortgage that is available for you.