Hat Is One Difference Between Fixed-Rate Mortgages And Variable-Rate Mortgages Reverse Mortgages – What is the Maximum Claim Amount?

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Reverse Mortgages – What is the Maximum Claim Amount?

After a senior homeowner age 62 or older learns the general features of a reverse mortgage, they usually want to know how much the loan can offer as income. This can be done in several ways: by looking for a reverse mortgage income calculator on websites (not always an accurate indicator); by talking to various creditors over the phone; or by meeting face-to-face with a loan officer who provides the actual figures to the senior for review. Because the senior will want to know enough about the loan officer to trust that they are providing accurate information, a face-to-face interview is recommended whenever possible.

In a face-to-face conversation, the loan officer will usually use a reverse mortgage comparison sheet to show what income the homeowner can expect to receive. This sheet contains various credit products offered by the lender. Currently, only government-insured home equity conversion mortgages, known as HECMs, are widely available. The main differences will be whether the product is a fixed rate or a monthly adjustable rate HECM.

The core of the reverse mortgage comparison sheet contains columns of numbers that are labeled with names that may make little or no sense when first read. The first label that comes to mind (as it is usually at the top of the list of terms and numbers) is “Maximum Claim Amount”.

The maximum claim amount is actually an insurance term. Thinking about it this way will help understand where the number comes from. FHA has a maximum limit (currently $636,150) on the value of the home it will insure. Simply put, the FHA is willing to insure a reverse mortgage for the appraised value of the home up to the maximum claim limit. Therefore, if the home is appraised by an FHA-approved appraiser at $400,000, the maximum claim amount will be $400,000. On the other hand, if the home is appraised by an FHA-approved appraiser at $700,000, the maximum claim amount will be $636,150 or the current maximum limit that FHA will insure.

The maximum loan amount is generally calculated until the senior receives a consultation from a HUD-approved reverse mortgage counselor, the application is signed by the borrower(s), and an FHA case number is assigned. Only then does an FHA-approved appraiser physically perform an appraisal to determine a home’s value.

Although the maximum claim amount can be $636,150 and a house can be worth $800,000, don’t expect a HECM to provide the homeowner with $636,150 in income. The maximum claim amount is only one of three factors used to determine the earnings that can be offered. The other two factors are the age of the youngest borrower (must be at least 62) and the current expected interest rate (based on the current 10-year London Interbank Offered Rate, or LIBOR rate, plus a stated adjustable rate margin HECM and based on the current fixed rate for the fixed rate reverse mortgage). The basic rule is: the higher the maximum amount of the claim, the greater the proceeds available to the borrower; the lower the maximum claim amount, the lower the proceeds available to the borrower.

Take a moment and learn what terms like maximum loan amount mean in a reverse mortgage loan comparison sheet. Such knowledge can help you make an informed decision about whether a HECM reverse mortgage is a loan product that can help you now or in the future.

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