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Borrowing Home Equity Conversion Mortgage
Under the HECM program, the maximum amount you can borrow (your “principal limit”) is based on a HUD formula that considers three factors:
• the age of the youngest borrower,
• the maximum claim amount, and
• the expected average mortgage interest rate.
Your age — or in the case of couples or joint owners, the age of the youngest borrower — is a consideration because the longer your actual life expectancy, the longer monthly advances will be expected to be paid to you and the longer that servicing fees, mortgage insurance premiums, and interest will be charged to your loan balance.
With a HECM, the “maximum claim amount” also is used to determine the total amount of equity you can borrow from your home. It is the lesser of the appraised value of your house or the maximum loan amount that can be insured by the FHA for residences in your geographic area. The FHA geographic maximum is less in rural areas and normally higher in high cost urban areas. The maximum in extremely high cost areas, such as Hawaii, may be higher. Note that the FHA maximum loan amounts change periodically. Check with your lender to obtain the latest numbers or the HUD Web site.
The final factor — the effect of the expected average interest rate on the total advances — simply means that the lower the interest rate on your loan, the lower its cost and the more total funds available for borrowing. Similarly, the higher the rate, the higher the cost of the loan and the less funds available for borrowing. The expected average interest rate is a long-term rate that is used at closing to determine the borrower’s principal limit. For loans to be delivered to Fannie Mae, the expected average interest rate is equal to the sum of the margin determined by Fannie Mae and the 10-year U.S. Treasury security rate in effect at the time the loan is originated.
The highest borrowing limits for a HECM would be for the oldest borrowers living in the highest value homes originated when interest rates are lowest.
Read below more on Home Equity Conversion Mortgage
Mortgage Guide – Understanding Home Equity Conversion Mortgage
Mortgage Guide – Why Choose Home Equity Conversion Mortgage
Mortgage Guide – Do you qualify for Home Equity Conversion Mortgage
This is a blog post for Real Estate Professionals, Investors, Landlord, Property Manager, and Property Management Companies. Mortgage Guide – Tips to borrow Home Equity Conversion Mortgage is brought to you by SimplifyEm Pay Rent Online and Property Management SoftwareYou might also want to read:
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