Debt Consolidation Credit Counseling In Phoenix

Perhaps you've heard by now, perhaps not, but lenders, as of November 6, 2008 could begin closing reverse mortgages with the new higher lending limits in place.

At $417,000 the new national loan limits, in most parts of the country, absolutely bury the old limits by more than twice the former amount. It's quite a boon, but how does this affect the average borrower?

One could liken the lending limit to the actual value of a home and as a starting point to determine how much money the lender will actually allow the senior to borrow. If the value of the home exceeds the lending limit ($417,000), the borrower receives no additional benefit.

Don't forget, the lender is using the house and it's equity as security for the mortgage. The value of the home, or the FHA insurable limit, is the first and most important determination as to how much a borrower can receive.

Two other important factors go into this determination: Interest rate and the youngest borrower's age.

It probably comes as no surprise but reverse mortgage companies use actuarial tables. Yes, it may seem cruel but knowing how long the borrower is going live helps them determine the dollar figure to lend. Age is the next most important factor.

The great fear is one day more will be owed than the home is worth. Clearly if the tables tell a mortgage company the borrower is going to live 4 years as opposed to 14, they will lend the older borrower far more than the younger.

Variances in interst rates plays a big role. Reverse mortgage companies lend more money when interest rates are low and less when rates are high. When rates are high the equity in the home is eaten up much quicker than when rates are low.

People often say to me, "What percentage of my value am I going to get?" There is no percentage. All three variables need to be input into the formula and out will come the number.

Based upon interest rates today the average borrower, aged 62, will receive roughly half of their home's value, or the lending limit, whichever is less. A borrower, aged 90, will get about 75%. For ages in between you can extrapolate from there.