With today’s interest rates , borrowers receive more money because they do not accrue interest as rapidly. Borrowers with homes that have values that exceed the maximum HECM lending limit currently $970,800 receive less money as a percentage of their property value than those who are below that value simply because additional benefits cease to accumulate once the value rises above the $970,800 maximum.
Simply put, a borrower with all the same factors (age costs, etc.) owning a home valued at$970,800 will receive the same benefits as a borrower with a home valued at he has a good point $1,000,000 This would mean that the percentage of one’s home value is higher than the other, even though the dollars are the same and for homes up to $970,800, the HUD program is usually still the best option in most cases. If your home is valued above the HECM limit, you .
The principal limit or loan amount you can receive as stated above is dependent on several factors. Borrowers ages, interest rates, property values or HUD lending limit whichever is less on the HUD Home Equity Conversion Mortgage ( HECM ) and these items as well on the jumbo programs but then the program parameters instead of the HUD lending limits on the jumbo or proprietary programs.
How is the line of credit growth rate calculated?
The credit line growth rate is based on the unused portion of the line of credit. For any funds remaining in the line of credit, the line grows at a rate equal to the interest and mortgage insurance premium (MIP) that would be accruing on those remaining funds for as long as they remain unused.
Growth Rate Example:
E.g., if your interest rate is 4.5% and the MIP is .5% the total interest and MIP that would accrue on the funds is 5%. If you have $50,000 left on the line that you did not use and therefore did not accrue that 5%, that $2,500 (5% of $50,000) is then added to the line of credit and is available to you in an increased line amount. The next year you would have $52,500 available.
If the funds were not used in the following year, the growth would be computed on the balance or $52,500. Any funds borrowed would no longer be included in the growth calculation. You must remember that the funds only grow on the unused portion of the line. There is no growth in funds already used as they are accruing interest, so they do not result in an increase in the amount available to borrowers. The growth is not interest borrowers are earning. This is not a bank account where you have money sitting and where you are accruing interest.
It is an increase in your line and if you borrow those funds, you or your heirs owe those funds when the loan becomes due. If you decide never to borrow them, there are no funds available to heirs, but you and your estate do not owe them either. The equity remains in the home for you or your estate if you do not borrow the money.
How is the tenure payout calculated?
The tenure payment is a calculation that uses the benefit the borrower(s) receive based on the Principal Limit discussed above. The calculation takes that benefit amount and then uses the borrower(s)’ age(s) to determine the number of years the benefit must continue and assumes the credit line growth rate based on the known factors.
It then calculates a payment based on the known and assumed factors to determine the monthly payment that the borrower(s) would receive for life using the growth the line will receive on the falling balance. This amount exceeds a straight division of the Principal Limit divided by the borrower(s)’ life due to the growth of the funds in the line.