Overview: Finding the Best Reverse Mortgage Calculators
If you are nearing retirement age, now is a good time to begin thinking about getting a reverse mortgage and looking into reverse mortgage calculators. Available to people 62 years or older, a reverse mortgage is a type of loan that allows you to convert a portion of the equity in your home into cash.
The name “reverse mortgage” refers to the fact that rather than you making monthly payments to a lender, the lender instead makes monthly payments to you. Thus, the mortgage process is “reversed.” There are a number of reverse mortgage calculators available online that you can use to estimate what your monthly payments would be.
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This post explains what a reverse mortgage is and what you should know about reverse mortgages so that you can decide whether to incorporate this option into your financial plans. It then walks you through how to calculate your reverse mortgage payments and provides a list of the best reverse mortgage purchase calculators.
Read on to find out whether getting a reverse mortgage is the right decision for you and your family, and where you can find the best free reverse mortgage calculators.
What Is a Reverse Mortgage?
Unlike a typical mortgage, where a bank lends you money for your home and you pay them back in monthly installments, in a reverse mortgage, the bank makes payments to you, the borrower, by converting part of your home equity into cash. The reverse mortgage is repaid after the borrower moves out of their home or dies.
How does this work? A reverse mortgage payment calculator takes the following factors into account when calculating your monthly payments:
- Your Age: Reverse mortgage payment calculators look at how old you are (or how old the youngest spouse is, for couples), and factor this into the payment.
- Value of Your Home: How much is your home currently worth? A reverse mortgage purchase calculator takes this into account when calculating your monthly payment.
- Interest Rate: The interest rate on your mortgage is another factor that reverse mortgage calculators use.
- Appraised Value or HECM FHA Mortgage Limit: Reverse mortgage calculators use whichever is less—the appraised value of your home or the HECM FHA mortgage limit ($625,500) when calculating your payment.
Now that you understand what a reverse mortgage is and how FHA reverse mortgage calculators work, let’s take a look at the pros and cons of reverse mortgages to find out if this type of loan is a good fit for you.
Advantages of Reverse Mortgages
Using a reverse mortgage calculator for AARP can be a great option for older people. These loans can provide better financial security, a nicer lifestyle, and genuine financial relief. The American Association of Retired Persons (AARP) has a wealth of information on the pros and cons of reverse mortgages and the best reverse mortgage calculators.
While the biggest advantage of a reverse mortgage is that it permits you to access your home equity while you still own and live in the home, there are many other benefits. Here are the main advantages that reverse mortgage calculators can offer:
- Improve Your Finances Without Losing Your Home: Many retirement-age Americans who face financial difficulties risk having to give up their homes to make ends meet. Reverse mortgage calculators make it possible to access the equity of your home while you still live in it.
- Flexibility: A reverse mortgage loan is an extremely flexible product, which is a huge benefit. You can use this loan in a variety of ways depending on your needs. For example, if you have an immediate financial need, you can use it to alleviate that burden. Even if you don’t have an urgent financial need at present, a reverse mortgage loan can be a helpful financial planning tool. A reverse mortgage payment calculator can show you how much income you can expect per month.
- Small Risk of Default: Unlike a home equity loan or traditional mortgage, where you risk defaulting on your loan if you miss a payment, you cannot default on a reverse mortgage. This is because you do not have to make payments on the loan until you sell or move out of the home. Note that you do need to continue paying taxes and insurance on your home, however.
- No Downside: One of the biggest advantages of reverse mortgage calculators is that the amount of the loan can never be higher than the value of the home at the time of repayment. In other words, you are protected with this type of loan if the value of your home decreases.
- Tax Free: Reverse mortgages are a type of loan. As loans are not taxed, this is a tax-free form of income, which is a wonderful benefit. Use a free reverse mortgage calculator for AARP to find out what your tax-free monthly payment will be.
- Federally Insured: The most widely accessible type of reverse mortgage loan is offered through the Home Equity Conversion Mortgages (HECM), which is managed through the Department of Housing and Urban Affairs. As such, it is federally insured, meaning even if the lender defaults, you are still guaranteed to continue receiving payments. An FHA reverse mortgage calculator can show you what your monthly payment would be with this type of loan.
- Guarantees You a Place to Live: With a reverse mortgage, you can continue living in your home for as long as you wish. A reverse mortgage purchase calculator can help you understand how much extra income this loan would generate for you, so you can plan accordingly.
- Helps Maximize Your Income: A general rule of personal finance is that you should always try to maximize your earnings while minimizing your losses. Use a free reverse mortgage calculator to get a better idea of how a reverse mortgage can help you maximize your income.
Disadvantages of Reverse Mortgages
While studies suggest that 90% of people who obtain reverse mortgages are happy with their decision, they aren’t for everyone. A reverse mortgage calculator for AARP can help you understand if this is a good option for your financial situation. Here are some downsides of reverse mortgages that you should take into consideration before making your decision:
- Higher Fees: When you decide to take a reverse mortgage loan, there are a number of fees required up front (though these are financed through the loan itself). These fees include origination fees and the costs of closing and insurance. Many financial advisers consider these fees to be high compared to other types of loans. For example, the fees associated with refinancing your house are typically lower. A reverse mortgage calculator or jumbo reverse mortgage calculator can show you how the fees will affect your monthly payments.
- Interest Accumulates: Since you do not make monthly payments on a reverse mortgage loan, the interest you owe on the loan will continually accumulate throughout the duration of the loan. However, the total amount you owe will never exceed the value of your home. Reverse mortgage calculators can help you understand the accumulating interest of these types of loans.
- Not Enough Cash Available: The current limit of reverse mortgage loans is $625,500, so if your house is worth more than that you may be frustrated that you can’t access that extra cash. Look into a jumbo reverse mortgage calculator if the value of your house exceeds $2.5 million.
- Still Need to Pay Insurance and Taxes: While obtaining a reverse mortgage can ease many of your financial burdens, keep in mind that you’re still responsible for paying homeowners insurance and property taxes, as well as any necessary home repairs.
- Difficult Concept: Many people have trouble getting their heads around the concept of a reverse mortgage, because it seems counterintuitive—how can it be possible to take out a loan that you don’t have to make payments on? In a traditional mortgage, you borrow money up front and make monthly payments. With a reverse mortgage, you gradually accumulate the loan over a period of time, and only have to pay it back once you move away from your home. Reverse mortgage calculators can help illuminate the concept.
How to Qualify for a Reverse Mortgage
The most widely available type of reverse mortgage loan is the HECM reverse mortgage, offered through the Federal Housing Administration (FHA). An FHA reverse mortgage calculator can help you understand how this type of loan would benefit you.
To be eligible for an HECM reverse mortgage, you must meet the following qualifications:
- Age: You must be at least 62 years old.
- Homeownership: You must own you house outright or be able to pay off the remainder of your mortgage with the proceeds from your reverse mortgage loan. Reverse mortgage calculators can show you whether this is possible.
- Ability to Pay Property Insurance and Taxes: You must show that you can afford to continue paying your property taxes and insurance.
- Live in Home: To qualify for a reverse mortgage, you must currently live in your home.
If you meet these qualifications and believe that the pros of reverse mortgages outweigh the cons, the next step is to find a reverse mortgage calculator. The next section reviews the best reverse mortgage calculators available today.
Best Reverse Mortgage Calculators
If you are considering obtaining a reverse mortgage loan, your first question is probably: how much will this loan offer me? Fortunately, there are a variety of free reverse mortgage calculators that you can use online, which will help answer this question. Here are the best reverse mortgage purchase calculators:
- National Reverse Mortgage Lenders Association: This free reverse mortgage calculator is an easy-to-use online tool that will show you how much money you’ll receive in monthly payments if you obtain a reverse mortgage. The National Reverse Mortgage Lenders Association is “the national voice and conscience of the reverse mortgage industry,” so you can be confident that this is a trustworthy product.
- MortgageCalculator.org: Mortgagecalculator.org offers a free AARP reverse mortgage calculator that can help you determine what the balance of your future loan would be over time. This calculator is particularly helpful in showing the impact of compound interest on reverse mortgages.
- Reverse Mortgage Alert: This is one of the few free AARP reverse mortgage calculators available that does not require you to input any personal information. Another advantage of this calculator is the step-by-step guide at the bottom of the website that walks you through how to use the calculator.
- All Reverse Mortgage Company: All Reverse Mortgage Company is an award-winning, HUD-approved lender of reverse mortgages. The company also has an A+ rating with the Better Business Bureau. Their reverse mortgage payment calculator is free and easy to use on their website.
- SunWest Mortgage Company: This free reverse mortgage calculator is offered through SunWest Mortgage Company. The website can help calculate your future loan balance whether the value of your house is modest or if you’re looking for a jumbo reverse mortgage calculator.
- NewRetirement, Inc.: NewRetirement, Inc. has an A+ rating with the Better Business Bureau. Their AARP reverse mortgage calculator tool is free to use through their website and will show you your reverse mortgage estimate, while also giving you tips on whether a reverse mortgage is right for you.
- The Mortgage Professor: This is one of the most helpful reverse mortgage calculators available today. In addition to asking you the usual questions like what is your birthday, the current value of your house, and the existing balance on your mortgage, this FHA reverse mortgage calculator also factors in the primary reason why you’re applying for a reverse mortgage.
- Reverse Mortgage Solutions, Inc.: This BBB-accredited company offers a free reverse mortgage calculator, which also comes with a free information kit including an educational DVD and a “Top 10 Things to Know” booklet. If you still have questions about reverse mortgages, these accessories might be quite helpful for you.
The idea of a reverse mortgage seems counterintuitive to many people when they first hear about it. However, these loans can make a huge difference in the lives of senior citizens who are facing financial trouble or just want to make a solid financial plan for their future.
This post began by explaining what exactly a reverse mortgage is and what factors are used in reverse mortgage calculators. The primary factors that go into your reverse mortgage are your age, the value of your home, and your interest rate.
We then reviewed the main advantages and disadvantages of reverse mortgages to help you understand if this type of loan is a good fit for your needs. The biggest advantage of a reverse mortgage is that it allows you to access the equity of your house while still living in your home.
There are also some disadvantages, however, such as the high fees associated with this type of loan. Reverse mortgage calculators can help you get a better idea of how a reverse mortgage will impact your financial security.
Finally, this post listed the best reverse mortgage calculators available today. Whether your house has a modest value or is worth millions and you’re looking for a jumbo reverse mortgage calculator, it’s worth looking into these loans.
Think a reverse mortgage might be right for you? Use a free reverse mortgage calculator today to find out how this loan can benefit you!
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