# Using the HECM Reverse Mortgage Calculator

April 15, 2015

The calculator is designed to show how much you can draw on a HECM reverse mortgage in upfront cash, monthly payment or unused credit line, individually or in a combination of your choosing. If you are purchasing a house with a HECM, it shows how much you can draw on the HECM for the purchase, and the amount you need to raise from other sources. The calculator also shows the implications of any selection for your future finances, and guides your selection of the lender offering the best deal.

You begin by entering the information requested. The accuracy of the calculator results depends upon the accuracy of the information you enter. If you have a question about any of the entries, place your cursor over the question mark. If you still have a question, contact the professor.

When finished, click on “Continue to Step 2”.

## Step 2: Select the Type of Reverse Mortgage

If You Are Taking a HECM Against Your Current House: Step 2 shows the amounts you can draw as cash, credit line or monthly income, and the HECM charges on both fixed-rate and adjustable rate HECMs. Note that fixed-rate HECMs allow only upfront cash draws.

In some cases, you will also have a choice between a low and a high upfront mortgage insurance premium. The upfront mortgage insurance premium is set by FHA. The premium is ½% of property value if the initial loan amount (financed settlement costs plus existing mortgage loan balance and other mandatory upfront expenses) is no more than 60% of total borrowing power. Above 60%, the premium is 2.5% of property value.

Note that the amounts you can draw as cash, credit line or monthly income are the maximums available in each case, assuming that the other two draws are zero. You can mix and match your draw options as you please at Step 3.

Click on a "Select Adjustable Rate" or a "Select Fixed Rate" button at the bottom to go to Step 3.

If You Are Purchasing a House With a HECM: Step 2 for house purchasers shows the amount you can draw on the HECM to apply to the purchase, and the amount you will have to raise from other sources. To help guide your selection, Step 2 shows the financial cost of the purchase over the period you expect to have the house. This cost is the sum of the HECM mortgage balance plus the cost of the funds raised elsewhere at the interest rate you  entered at Step 1.

Click on a "Select Adjustable Rate" or a "Select Fixed Rate" button at the bottom.

## Step 3: Select the HECM Payment Options

This step applies only to those who are taking a HECM against their current house. House purchasers skip this step.

When you first enter, the amount of the available credit line is shown, assuming zero cash draws and zero monthly payments. As you enter amounts for cash and/or monthly payments, the available credit line declines. You can add or subtract cash and income draws until you find the combination of draws that fits you best. You can also see financial projections for any combination you choose.

When you are satisfied with the combination of draw options, click on "Select Lender and Price."

## Step 4: Select Lender and Price

The reverse mortgage market in general is very poorly organized with wide variations in lending margins and quality of service. Almost all seniors take their HECM from the one loan provider they contact, or the one who contacted them. There is virtually no price shopping.

In contrast, the loan providers who post their prices on this site understand that their prices are being compared to others, which means that their prices must be competitive if they hope to be selected. Furthermore, the loan providers listed have all been certified by the professor, which means among other things that they are being monitored to prevent any unjustified last-minute price increases.

Nonetheless, the decision may not be easy. The choices offered to you here may differ by 1) Lender, 2) Interest rate, 3) Origination fee, 4) Credit line, 5) Future Loan Balance and 6) Future Credit Line. Of these, the last two are the most important. One polar case is where the period is relatively short, say 5 years or so, and the borrower expects to sell the house at that time. In this situation, the borrower should select the HECM that will have the smallest loan balance at the end of the period.

The second polar case is where the period is relatively long, say 15 years or more, with the borrower expecting to stay as long as  possible and having no concern about the value of her estate. In this situation, the borrower will be indifferent to the loan balance and will favor the HECM that provides the largest future credit line.

Borrowers who fall between these polar cases will be concerned with both future debt and future credit lines. They may also be interested in their conversion options – their right to convert a credit line to a monthly payment, along with the reverse. They can see their conversion options by clicking on "See All Features For All Years."

When you have made your decision, click on “Select’, which allows you to send your information to the selected lender – and only that lender – with an invitation to contact you.

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