subject: 3 Facts Why The Reverse Mortgage Equity Share Depends On The Age [print this page] With the reverse mortgage equity we mean the minimum amount of equity, calculated from the appraised home value, which a senior must have. The age of the youngest borrower is only one element in the formula, which determines how much reverse loan a borrower will get.
The others are the appraised value of the home and the interest rate level. We can say roughly, that the older the youngest borrower, maximum 3 are allowed, the more expensive the home and the lower the interest rates, the more the borrower or borrowers can get.
1. The Age Of The Youngest Borrower Has Big Influence On The Equity Requirement.
The equity is an own capital, i.e. when a home owner deducts the mortgage from the appraised home value, the rest is equity. The equity is important for the reverse loan lenders, because that is the only guarantee for the loan. The youngest age for the borrower is 62 and there is no age limits upwards.
If a borrower, the youngest one is 62, the reverse mortgage equity requirement is 46 %. If he is 90, the requirement is only 26 %, 20 points lower! If you want to know the figures in your case, you can easily draw one y axis and x axis and then divide the y axis from 0 to 50 percentages and x axis from 62 to 90 years and mark the 46 % on the spot of 62 year and 26 % on the spot of 90 year and unite these points by a line. Now you can easily see a rough estimate, how much equity your age requires.
2. Why The Math Looks Like This?
When a younger borrower must have more equity, it must have something to do with the length of the running time, ie. a lender wants more guarantee for the loan, which is taken by the younger borrower. The difference between 62 and 90 year old borrowers are 28 years.
Historically that is a long period during which the home prices have time to increase. But also to decrease as we have seen during the so called finance crises. So the longer the running time, the more difficult is to forecast, what will happen with the appraised home prices and with the interest rates.
3. The Competition Between The Home Price Increases And The Interest Rates.
When only a part of the appraised value is as a guarantee, the reverse loan is quite riskless for the lender. But there are still a kind of a competition between the home prices and interest rates. If the home price increases are higher than the interest rate, the equity will grow and another way round, the equity will decrease.
The reverse mortgage equity requirement has meaning especially for the younger borrowers and for those, who think, whether to take one younger borrower as an owner. The age, which is followed is the one of the youngest borrower. Also home owners, who have big usual mortgages, note, that the equity requirement can stop their reverse mortgage project.
