REVERSE MORTGAGE INFORMATION: Tools, News and Resources to Help Seniors Decide

The HPI (House Price Index) is a measure of the movement of single-family house prices prepared quarterly by the Office of Federal Housing Enterprise Oversight (OFHEO). Because of the breadth of the sample, it provides more information than is available in other house price indexes. It is a measure designed to capture changes in the value of single-family homes in the U.S. as a whole, in various regions of the country, and in the individual states and the District of Columbia. The HPI is published by the Office of Federal Housing Enterprise Oversight (OFHEO) using data provided by Fannie Mae and Freddie Mac. OFHEO began publishing the HPI in the fourth quarter of 1995.

The HPI is published every three months, approximately two months after the end of the previous quarter. For more information visit this page.

[tag]HECM[/tag] [tag]Reverse Mortgages[/tag] – How Much Money Can You Get?
By Peter Boston

With reverse mortgages, everyday terms related to loans and loan amounts can mean very different things than what you might expect. It is important then to precisely define these terms as they are used for reverse mortgages.

[tag]Principal limit[/tag] or maximum principal limit is the total aggregate amount of money that will ever be available over the life of the reverse mortgage. Whether the money is paid to the borrower monthly, in a lump sum, or from time to time, when you count every dollar paid from the loan it cannot add up to more than the principal limit.

Think of the principal limit as a can of flour. All the flour you are ever going to get goes into that can at the loan closing. However, you will only be charged for the flour that gets removed from the can.

The loan balance is the actual amount of money that is charged to the loan by cash advances to the borrower, plus accrued interest on the disbursed cash, plus fees. You can see right away that part of the principal limit is going to be eaten up in accrued interest and fees. The actual amount of cash that the borrower can get over the life of the reverse mortgage will always be something less than the principal limit.

The loan balance is the flour that gets scooped out of the can. There’s some for you, and always some for HUD, and some for the lender. You eventually have to pay for all the flour that gets scooped out of the can regardless of where it goes. The major criticism of HECM reverse mortgages is that more than 4% of the flour in your can gets scooped by HUD, the lender, and an assortment of service providers at the closing.

The maximum principal limit that you can get with a HECM reverse mortgage is based on a HUD formula that considers three primary factors.

The age of the youngest borrower.

The minimum age for any borrower is 62. This is a [tag]HUD[/tag] eligibility requirement so the loan application cannot even go forward unless every person shown as an owner on the property deed is age 62 or older. Lenders will usually bump up the age of the youngest borrower by 1 year if he or she is less than 6 months from their next birthday at the time of the application.

Age is a primary consideration because the longer the life expectancy of the youngest borrower, the more servicing fees, mortgage insurance premiums, and interest will be charged to the loan balance over the life of the loan. Because these costs and fees are expected to take a bigger bite out of the principal limit there is going to less cash available to the borrower.

The maximum claim amount.

The maximum claim amount is a cap on the principal limit. This cap is set at the lesser of your home’s appraised value or the FHA max loan amount for houses in your geographic area. Think of this as the zip code cap.

Generally urban areas get higher caps than rural areas, and some urban areas get higher caps than others. These numbers change regularly and the lender will have the latest information. You can check for yourself at the .

The expected average mortgage interest rate.

This is a fancy term for the discount rate the lender uses to present value your loan. A dollar to be paid in 10 years is always worth less than a dollar paid today. The expected average mortgage interest rate calculation is based on the price of 10 year Treasury securities plus something called the sum of the margin. The lower this rate the higher the principal limit and vica versa. The expected average mortgage interest rate is not the interest rate you will pay on your loan balance. That rate is calculated in a different way. The expected average mortgage interest rate is used only to determine the principal limit.

These are the major factors used to determine how much money you can get from an HECM reverse mortgage. Any lender can do an accurate calculation based on the information you give them about your personal situation. The basic rule is the older the youngest borrower, the lower the prevailing interest rates, and the higher the cost of housing in your area, the higher the principal limit on a HECM reverse mortgage.

For a very rough estimate: subtract 6 from the age of the youngest borrower, use that number as a percentage of your home’s market value, subtract from that amount your current mortgage and any liens. E.g. 70 year old borrower, $200,000 market value, $25,000 existing mortgage. 70 – 6 = 64. $200,000 * .64 = $128,000 estimated principal limit. Subtract $25,000 from $128,000 to get $103,000 estimated money availability. If your house is worth a lot more than $200,000 you will probably be limited by the zip code cap.

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(c) 2006 by Peter Boston. Peter is an attorney, writer, and the editor of the website, a tips and resource site for , credit cards, improved credit scores, and consumer credit information, updated daily on the Profacere .

Principal limit lock (PLL) is a feature of [tag]reverse mortgages[/tag] that freezes the expected interest rate on federally-insured [tag]Home Equity Conversion Mortgage[/tag] (HECM) reverse mortgages for a period of up to 60 days from the date of application.

The expected interest rate, is a critical factor that is used to determine how much equity an elderly homeowner is eligible to receive from a [tag]HECM[/tag]. It is calculated by adding a pre-set margin to the 10-Year U.S. Constant Maturity Treasury rate. The 10-Year U.S. Constant Maturity Treasury rate is published weekly by the Federal Reverse. The margin that is added is currently 1.5% for monthly-adjusted loans and 3.1% for annual-adjusted loans.

The PLL mechanism is intended to protect borrowers from interest rate changes during the application process. Prior to the implementation of the principal limit lock, if rates increased between the time of application and the loan closing, the borrower received less money.

If rates decline between the date of application and closing, the homeowner can utilize the lower of the two rates and receive more money than what was originally quoted. If the loan closes after the 60-day lock expires, the prevailing interest rate on the actual date of closing is used, regardless of whether it’s higher or lower.

[tag]Social Security[/tag] benefits are typically computed using “[tag]average indexed monthly earnings[/tag] ().” This average is essentially the 35 highest years of earnings indexed to the present by wage growth. A formula is applied to this average to compute the primary insurance amount (PIA). The PIA is the basis for the social security benefits that are paid to an individual.

Not a recognized type of residential mortgage and not to be confused with “reverse mortgage”.

An inverse mortgage a trademark name for a mult-level marketing strategy that tries to combine the benefits of bi-weekly mortgage payments and referral marketing. The following is from a (Brixdale) company press release:

Better than a bi-weekly plan, an “inverse mortgage” is a trademarked name for Brixdale’s electronic mortgage payment program. It offers the benefits of applying extra principal only payments against your mortgage loan. In addition Brixdale’s outstanding home business & tax savings program will help you jump start your mortgage acceleration. These opportunities will show you how to save 16+ years on your mortgage – pay it off in MONTHS not YEARS!!

The National Association of Mortgage Brokers (NAMB) is the national trade association representing the mortgage broker industry. With 50 state affiliates, and more than 27,000 members, NAMB promotes the industry through programs and services such as education, professional certification and government affairs representation. NAMB members subscribe to a code of ethics and best lending practices that foster integrity, professionalism and confidentiality when working with consumers.

Mortgage brokers are real estate financing professionals acting as the intermediary between consumers and lenders during mortgage transactions. A mortgage broker works with consumers to help them through the complex mortgage origination process.

The National Retirement Risk Index (NRRI) is an index designed to measure the percentage of working age households who are at risk of being unable to maintain their pre-retirement standard of living in retirement. The Index, developed by the (CRR), projects how much income households are expected to have in retirement relative to their pre-retirement income. It then compares this replacement rate to a target rate that would allow a household to maintain its pre-retirement standard of living. Households that fall more than 10 percent short of the target are considered at risk.