Reverse Mortgage Calculator
What is a Reverse Mortgage?
As the name indicates, a reverse mortgage is a way to borrow money on an existing home rather than getting a mortgage to purchase a home as is the norm. The equity or in other words the excess value in a home is used as security to borrow money. There is no income required for such a loan type as the homes equity is sufficient. The interest on the loan is compounded to the outstanding loan balance over time, and all amounts must be repaid if the homeowner should sell the home, die or move in to a old age home or other care facility.
Risks Associated with a Reverse Mortgage
A reverse mortgage can be a very useful lending option, but it does, however, have certain risks and points that need to be highlighted.
- Higher interest rates are payable than those on traditional home loans
- The total debt can grow quickly due to the interest that is continuously compounded
- Such a loan may affect an individuals eligibility for a certain pension benefits
- Someone living with you may have to move out should you die
- If your reverse mortgage is not properly secured, you may end up having more debt than your home is worth.
How a Reverse Mortgage Calculator Can be Used Effectively
A Reverse Mortgage Calculator is an online tool that can give useful information to anyone considering a reverse mortgage. Here are examples of detailed information that a reverse Mortgage Calculator can give.
- Amount that can be borrowed:
The industry standard for reverse mortgages is basically 15%- 40% of the home’s value, depending on the age of the borrower. Reverse mortgages offer higher loans to older individuals, basically due to the fact that the loan period should in essence be lower. The minimum amount that can be borrowed is usually preset by the financial institution, whereas the maximum amount is based on the value of your home. A reverse mortgage calculator will give a very good idea of the amounts that can be borrowed based on the current age of the borrower and the value of the home.
- Costs of a Reverse Mortgage:
The major cost in a reverse mortgage is the interest that is compounded continuously. This interest will add to the loan taken, and drastically increase the amount owed. The longer this amount is outstanding, the larger it grows. There are other fees that are also involved. These costs must be carefully calculated and considered as they can leave the home owner with little or no money for aged care or other needs, so the Reverse Mortgage Calculator will help highlight the interest and costs that are involved over each year after taking out the reverse mortgage.
Conclusion and Cautionary Warning
A reverse mortgage can be the perfect financial life line to a retired home owner, however, it is also the type of financial product if not understood properly could cause insurmountable cost and risks to an individual. Although a Reverse Mortgage Calculator is a fantastic tool to help to visualise future costs and benefits, it should not be used as the only decision making tool when considering this option. It is strongly advised that the advice of a qualified financial advisor is used in conjunction with the calculator to ensure that the borrower maximises their homes value and the amount borrowed.
Related posts:
- Home Loan Interest Calculator
- How To Benefit From A Home Loan Calculator
- Is It Smart to Use a Reverse Mortgage?
- Reverse Mortgages for Seniors
- Reverse Mortgages Can Help You Fund Retirement
- Offset Mortgage Calculator
- Reverse Mortgage
- Refinancing Calculator
- Mortgage Switching Calculator
- Interest Only Mortgage Calculator
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