The reverse mortgage (RM) was designed for seniors age 62 and older. A reverse Mortgage allows the release of some of the equity in their homes, it differs from the standard equity line in that there are never any payments to be made while the senior lives in the home. The formula that FHA uses include the appraised property value, the age of the youngest individual on deed (62or older) and the current interest-rate based on the constant maturity index CMT Treasury Bill or the LIBOR index.

Example: a 62-year-old with a $200,000 home, and current interest-rate could receive a little over $100,000 out of the equity. This amount is after closing costs and all other fees have been handled. The net available to the senior can be taken in a lump sum, a monthly payment for the rest of his life of approximately $570, or a credit line to be used as needed. The credit line has a growth rate attached to it, and the money does not draw interest until it is used. The credit line is the most used of the features that are available with the (RM).

This could increase the retirement income in these changing times

Seniors interested in  a reverse mortgage anaylsis will often use a RM calculator. The RM calculators you find on-line require the estimated current value of the home, the total amount of liens (if any) on the property the ages of individuals on the deed and the ZIP code. The RM calculator requests the ZIP code because each county in each state may have a different maximum loan limit set by FHA.

This has been changed by FHA as the limit now is $417000 Nationally and higher in some areas.

The calculator will give a value that is fairly close to what an actual RM estimate will show. This is a great way to get an idea of how much you could receive from a RM, but remember it's just an estimate. Most RM products use variable interest rates and some RM calculators do not always stay completely accurate or current with the interest rates. There are also some RM calculators that will ask for the age of the individual and not the exact birthday. This can result in the difference between the estimate that would be provided by a reverse mortgage loan officer and an estimate prepared by the calculator.

The reverse mortgage is a great choice for many seniors as they do not limit them to what they can use the money for. If they want to pay off credit card debt, purchase of long-term health-care, do some upgrades to the home, or purchase a new car, it's up to you. I have seen grandparents set up college funds for the grand-kids to make sure that funds would be there when they go to college. One of my clients even took a trip to Las Vegas (not recommended) to play bingo.