Reverse Mortgage Loan Blog

DEAR BOB: I enjoyed your recent article about how senior citizen reverse mortgages work. But I have two questions: (1) how are the monthly payments to the homeowner calculated by the reverse-mortgage company, and (2) what happens when the homeowner outlives the market value of his house? If that happens, does he continue to live in the house and receive monthly payments although the result will be a loss to the lender? –Dale S.

DEAR DALE: Each of the three nationwide reverse-mortgage lenders, FHA, Fannie Mae, and Financial Freedom Plan, has a different formula to calculate payments to the homeowner. The age of the youngest borrower (you must be at least 62), the adjustable interest rate at the time of obtaining the reverse mortgage, and the home’s market value are used.

To compare how much you can receive from each plan, on the Internet go to www.FinancialFreedom.com and enter your age and estimated home value.

The older you are, the more money you can receive (because of a lower life expectancy). As a general rule, FHA is best for homes worth below $400,000, and Financial Freedom Plan is usually best for more expensive homes because it has no maximum limit.

If you outlive your life expectancy, the reverse-mortgage lender must keep paying you each month even if the total principal and accrued interest exceed your home’s market value.

Found here.

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