Reverse Mortgage Calculator (2018)

reverse mortgage calculator that you can

quickly use as we're going to talk by

here today at the herons wealth planning

YouTube channel I think you'll get a lot

out of this because I'm becoming a fan

of reverse mortgages indeed so if you

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for future content so let's dive right

into this I'm reading this book from

wave valve was a PhD at CFA all those

letters and reverse mortgages and I've

been falling away for a long time so

when he writes stuff I listen he's got a

website let's go into it here called

retirement research dot-com retirement

researcher calm and in his book he

mentioned this retirement reverse

mortgage calculator and he got a lot so

it's just he's I mean tons and tons and

tons of stuff on this guy's website big

fan I think he does work with a group

called McLean asset management don't

know anything about them I don't know

but if Wade affiliates with a group that

probably legit just because ways legit

guy alright so let's go to his resource

calculators reverse mortgage calculator

so give an example I'm working with this

couple this most 68 years old and they

need other income they need more income

all right so this is and I'm gonna show

you I'm different when I'll do another

video where I'd actually do a scenario

with my software that I use they're

trying to generate about five hundred

dollars a month more of income all right

so that's what they're trying to

generate and there's their options are

somewhat limited and so reverse mortgage

seems to be a pretty good option for

Mandla so let's go for Wade's calculator

a heckum

a Home Equity Conversion mortgage ie

reverse mortgage hacking for short

this is Bayes they change the rules

pretty thoroughly in October 2017 to

make the the system a lot more valid a

lot more stable which is good I know

share why here in just a second but this

is updated for that for the 2017 change

if you're looking at I don't know what

other calculators are out there frankly

I haven't looked if we'd writes about it

and he's got a calculator out there this

would be your go-to for sure but if you

are looking at other calculators you

want to make sure is updated for October


team rules if it hasn't been I would

just refrain from using it because the

rules have changed dramatically all

right so let's go in these guys case

again they're both 68 that's a reason as

important they got a hundred thirty

thousand is their fair market value

their appraised value however you want

to say it not going to say assessed

value so yeah a fair market value

theoretically way could sell it for

right now that's going to be somewhat

Ava is hard to pin net now because

everyone thinks they have the best home

in neighborhood so you're fair market

value in your brain might be different

than your actual appraised value your

praise value is what a supposedly a

fair-minded appraiser would give you for

what estimate your homeless value and

they're gonna look at comparables and

your neighborhood comparables for your

size the house all that that's the best

guesstimate for your value if you're not

Sun your house the best guesstimate for

your house value is someone who actually

buys it it's always valuable if

someone's actually willing to cut you

check and that's you know capitalism one

on one there what's the value of X

whatever someone's willing to pay for it

then no other way around that but

because you're not trying to sell it we

have to appraise it and that will go to

part of your closing cost and as a know

if you ever been through an appraisal

you got to make sure they know what

they're doing I some of these appraisal

companies just it's the it would just be

careful alright but it is gonna come out

of your closing cost for sure alright so

we have appraised value what's an

assessed value we're not looking at cess

value that's what the county uses to

give you your taxes on your real estate

and the assessed value is always going

to be low because that way they can feel

like they're not taxing very highly and

get reelected so just from some counties

the assessed value or close the

appraised value so the fair market value

but you're not talking assessed don't go

to your county's website the GIS

geographic information system thing look

up your property and see whether their

assessed value is and use that here no

no no we want to use an appraised value

right so here we're going to say an

appraised value one hundred thirty

thousand which is what they told me they

got to use a ten year LIBOR swap rate

and nice thing about ways saying he is

updates automatically so this interest

rate is used to the calculation to

determine available credit through the


last update was 10 for 2018 which is

what that's today so that sucker updated

latterly this morning Wow

are as good lenders margin alright this

is the amount of money the lender is

going to make off your debt essentially

this interest rate would be provided by

the lender as part of the terms of the

proposed loan is generally between two

to quarter and 4% it remains fixed for

the duration of the loan and provides a

source of revenue for the lender is

using calculations for the initial

available amount and the growth of

principal mouth so just remember Lenny's

margin is what they're gonna every sense

it was happiness you can go to the bank

and loan them you know a hundred

thousand dollars for a one-year CD and

they get two percent back they're going

to turn around loan that out to somebody

for five and you know six percent so

that's the lenders margin

all right then there's a monthly

insurance premium used to support the

government's Insurance Fund that

provides guarantees to both the borrower

and the lender for all homes issued at

the present time October 17 2017 it

remains permanently fixed at 0.5% all

right so you're gonna have this monthly

insurance premium which you can't change

and that's just to keep the solvency of

the fund that Ginnie Mae FHA back to

make sure that if your house is

underwater when you die you there is no

obligation to your heirs none whatsoever

the government will pay the difference

and that's the prompt that up which is

good you should have that all right in

this case Jane and Joe are 68 years old

or both 68 at this point and what

happens is we have this principal limit

factor PLF unless looking about the PLF

is the principal limit represents the

credit capacity available for a reverse

mortgage P laps are published by the HUD

Housing and Urban Development factors

are updated over time to manage the risk

to the insurance fund last updated

October 2017 there you go there are

calculated based on age of the borrower

against 68 and the modified expected

rate 10 year LIBOR plus lenders margin

so they're calculated based on them

being 68 years old and then the lenders

margin and the modified effect for these

right here all right so the hairs that

were taken this right here modified

effective rate expectorate excuse me

taking this guy Plus that guy all right

and we're browning it to the lowest 1/8

of 1% so it's basically is 5 and 1/4 and

that's our expected rate right there

principal limit factor your age and you

expect a rate and that's going to give

you your how much you can borrow against

your house now let's just say we che

will say we're 78 instead of 60 you'll

see what that does 78 so you see when to


all right over 68 and went to 43% let's

say over 62 which the minimum goes 39%

so you can see you kind of mess around

here a little bit and let's say the

LIBOR rate is not we'll say the lenders

margin will say 4% all right so what

does that do there at 4% it reduces your

prints of limit factored quite a bit all

right so let's say can even give us 5% I

guess it can but still as what says

again 4% so you can have a higher

lenders margin by if you don't have

close and if you have like closing costs

if you don't want any closing costs on

the loan you can say give me a higher

rate essentially at lenders margin

because they're gonna make their money

for sure but that's up to you all right

so you say look I'll pay you four

percent lenders margin as opposed to

paying any closing costs now loan

origination fee this where people are oh

my goodness is a scam

the initial fee charged by the lender

for processing the loan application the

maximum amount allowed to be charged as

controlled by the government is a factor

of the heckum eligible mouth lenders are

welcome to charge less than the maximum

the maximum amount to be charged at

provided next to the box so that's the

maximum out there twenty-six hundred

bucks but the input box allows user to

use the value the lender is aqua so

let's just say a thousand bucks we'll

say the origination fee is a thousand

bucks now they can charge up to 2600 now

other closing costs all right so we're

gonna have initial mortgage insurance

it's always going to be two percent of

the appraised value not two percent of

the borrowing value two percent of the

appraised value

all right so always your praise value is

five hundred thousand bucks what's your

initial mortgage insurance ten thousand

dollars that's right you've got it out

there in YouTube land ten thousand bucks

is always two percent of

the appraised value other closing costs

appraisals Titan we've talked about the

appraisal all that so you saw at the end

of the day what we have here is a one

thousand dollar bridge nation fee two

percent and mortgage insurance on top

the more a monthly insurance premium

begin to keep the system solvent you do

not want to leave your heirs with an

asset that is not worth anything to

actually they owe money on and this is

what the government does it charge you

to make sure if the asset is underwater

they have the money to pay it off and

then other closing costs appraisal title

and processing fees the fax fees they

charge it to the pencils you use a sign

the whole thing so our total upfront

costs are $6,100 all right

that's what's gonna cost us so $6,100

and our net available heckum is fifty

good now we're not gonna pay anything

out of bringing paid all out of pocket

we're not gonna finance so our net

available heckum is fifty seven thousand

so basically that's where people says I

have scam you're taking six thousand

fifty seven thousand seven zero divided

by six thousand and your is nine point

five percent total essentially upfront

cost you know that's not cheap no other

way around that now if you want to

finance it let's say we're gonna finance

at hundred percent that changes yeah

that goes to fifty thousand so let's see

how we did that we're financing a

hundred percent of the hekima cost sixty

one hundred so no out-of-pocket but if

we don't finance it it's fifty seven

thousand so you get that I am gonna

finance this actually one hundred

because the whole point about these guys

doing is they don't have the cash flow

and repairs we're not paying off any

debt because they own the home free and

clear so you can actually do that right

there in terms of debt so they have

fifty thousand one hundred dollars

available to them now they can take it

out as a ten year payment or they can

take it as a term payment or they don't

have to take it out in this case you

want to generate income but trying to

generate $500 more months so if they

take it out as a ten year payment the

monthly and annual amounts of ten year

payment which is last as long as the

borrow were remains eligible own

says I either die or they forget to pay

their property tax and they get

foreclosed on again it has nothing to do

with a heckum the reverse mortgage not

paying your property tax even if you

don't own a mortgage you're going to get

not foreclosed but the county is going

to come the sheriff's can knock on your

door and put you out eventually because

they're gonna say you got paid property

tax all right all right so that's the

bit so they can sit essentially say as

long as they're live Jane and Joe

they'll get two hundred ninety three

dollars a month for the rest or life

guarantee all right there's no I mean

it's just there's there's no issue if

ands or buts there they will get two

hundred ninety three dollars to the rest

your life guarantee as long as one of

them that has breathing which means

that's thirty seven hundred bucks on I

think it's gonna be on that amount right

there thirty-seven seventeen divided by

fifty nine seventy yeah so that's not

right so it's gonna be on the total

amount actually we'll see fifty yeah it

was 35 17 divided by but basically fifty

thousand yeah okay so basically it's

gonna be they can take $293 amount off

that amount but when you factor in your

payout rate it's thirty seven to

seventeen off the entirety of the

initial balance because we're financing

the loan so it's gonna be off this fifty

seven hundred fifty seven thousand

dollars so essentially they get a loan a

fifty seven thousand bucks will align a

fifty seven thousand dollars are taking

two hundred ninety three dollars a month

off it

that's a payout rate of six point one

six which is pretty good tax-free

tax-free now if you want to do a

specific term 20 years they'll get paid

more simply cos after term stop so let's

click on this guy right here the number

of years you want to receive term

payments so the number of years extends

beyond age a hundred you would

automatically be switched over to tenure

which is essentially like the lifetime

annuity so I like the lifetime annuity

thing here which is a ten-year payment

simply because you know as long as one

of us are living a less amount of money

we're gonna get so that's we'll just say

three hundred dollars months tax-free to

these folks and again they need five

hundred that goes a long way towards

that for sure absolutely in fact if they

wanted they can do a term when we can

make a 15-year term and it gives a 424 I

actually I like the 10-year one

now a couple things going on here is

that this they don't need they can stop

they can take whatever they want this is

not it's not like an income annuity

where it's irrevocable they can stop

don't pay me anymore they can pay money

back they want they don't have to they

can do whatever they want they could

turn it on turn off its a complete

lepton it's completely tax-free what

else what I want to tell you about now

what happens is the line of credit

actually grows as well so basically in

theory and I mean I'd be hard to see how

this could happen but in theory the line

of credit could grow more than the house

is worth all right so they could really

access a whole MA it's probably not

going to happen anytime soon but in

theory they can be 105 years old and

their line of credits worth $200,000 in

a house is only worth 179 175 absolutely

could happen the line of credit grows

each and every year and I think this is

where not excuse me but I think is with

that rate right there so they're being

charged that Ray 5.25 does their

expected rate but the line of credit

also grows at that same amount each year

so I'm not gonna say the offset because

they don't because the line of credit is

just how much do you have access not a

growth in terms of like you're putting a

$500,000 in a portfolio is growing it's

just their ability to access in the

future the line of credit is growing by

that amount each year but as is the debt

that they're accumulating to so that's

the reverse mortgage from wave house

website a huge fan of this definitely

think you should look at it and you can

just play the numbers here blue in the

face I love it now again biocharge

that's a scam I got paid six thousand

dollars upfront cost yeah because the

government is gonna guarantee that you

cannot be underwater and why would I as

a taxpayer who's not doing this have to

shell out the money for that for your

benefit if you're gonna go down the road

of reverse mortgage you should have to

pay for that government guarantee use it

and as user pays I got no problem at

least and that's what the upfront cost

covers so I'm a fan of it for sure so

let me get my phone here I wanna say my

phone is ringing so I'll close that

there hope you like it go to weights

website at retirement research or comm I

think you'll get a lot out of that if

you have any questions let me know

a huge fan of engaging in reverse

mortgages as part of a strong financial

plan so comments are always welcome

thumbs up always help and don't forget

to go to my blog at heritage wealth

planning com thanks now