From Kiplinger’s Personal Finance magazine, 2008

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June 12, 2008

From Kiplinger’s Personal Finance magazine, Kiplinger, 2008

When you shop for a reverse mortgage, lenders must give you the total
annual loan cost (TALC), the equivalent of an annual percentage rate.
But this doesn’t reflect how your pattern of withdrawals will affect
your total cost or the equity when the loan ends.

AARP
has developed a model that lets counselors and lenders give you a
customized analysis. Golden Gateway Financial, a reverse-mortgage
broker, has an online calculator that uses AARP’s model to let you
compare loans.

At GoldenGateway.com,
click on “Do the math.” Input your age, estimated home value and zip
code (to determine whether your home’s value exceeds the Federal
Housing Administration limit for your area). The program generates your
loan options, which you can sort by loan limit or by interest rate.

The table below summarizes the results in March for a homeowner in
northern Virginia whose home is worth $350,000 and who has a $50,000
mortgage balance. It assumes an upfront withdrawal of $50,000 to pay
off the mortgage. We ran the numbers two ways: with a loan term of 20
years for a 62-year-old and ten years for a 72-year-old.

Different ages, different payouts

Age	Loan term (yrs.)	Initial loan limit	Max. monthly payment	Total cost	Cash received	Equity remaining
62	20	$146,588	$676	$426,752	$262,240	$77,901
72	10	175,484	1,370	171,009	264,400	82,676

Interest. Most lenders charge a variable rate based on the
one-year Constant Maturity Treasury or LIBOR index plus a margin of one
to one and a half percentage points. In March, lenders at Golden
Gateway offered rates ranging from 4.86% to 5.55%. The loan used in the
example had an initial rate of 5.28%.

Initial loan limit. This is based on your age (or that of the
youngest co-borrower), the value of your home and its location (see the
accompanying article). The older the borrower, the higher the limit.

Maximum monthly payment. This amount depends on how much you
initially withdraw as a lump sum or reserve for a line of credit. In
our example, the younger buyer qualifies for a much lower monthly
payout.

Total cost. In addition to interest, the lender can currently
charge up to 2% of the home’s value (or the FHA limit, whichever is
less) for the origination fee. Lenders can also charge for such things
as an appraisal and title search. Plus, you’ll pay a monthly servicing
fee of $30 to $35.

For the federally insured home equity conversion mortgage, you’ll
pay mortgage insurance of 2% of your home’s value upfront, plus 0.5%
added to the interest rate on your loan.

Equity remaining. This is the amount of equity you’re
projected to have left at the loan’s end. In the table, the younger
borrower’s remaining equity is only slightly lower because we assumed
4% per year annual appreciation — the historical average.

Full post here NewRetirement Retirement News Digest : About Reverse Mortgages