Reverse Mortgage Formulas:
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Definition: This calculator estimates the principal limit and monthly payments available through a reverse mortgage based on home value, age factors, and loan terms.
Purpose: It helps homeowners understand potential reverse mortgage benefits when converting home equity into cash without monthly mortgage payments.
The calculator uses two main formulas:
Where:
Explanation: The principal limit is calculated first, then reduced by fees, and finally converted to monthly payments using the annuity factor.
Details: Accurate estimates help seniors determine if a reverse mortgage suits their retirement planning needs while understanding the available funds.
Tips: Enter your home value, PLF (typically 0.4-0.6 based on age), estimated closing fees, and annuity factor (often ~0.0058 for monthly payments).
Q1: What determines the Principal Limit Factor (PLF)?
A: The PLF is based on the youngest borrower's age, current interest rates, and the loan type (fixed or adjustable).
Q2: How are closing fees estimated?
A: Typical fees include origination charges, mortgage insurance, appraisal, and title services ($2,000-$10,000).
Q3: What's a typical annuity factor?
A: For monthly payments, factors range from 0.0048 to 0.0065 depending on interest rates and life expectancy.
Q4: Can I get all the money as a lump sum?
A: Yes, but the calculator shows monthly payments. Lump sum would be (PL - Fees) without multiplying by the annuity factor.
Q5: Does this include all reverse mortgage costs?
A: No, it's an estimate. Actual loans may have additional costs like servicing fees or interest accrual.