Key Takeaways:
- Online reverse mortgage calculators are convenient tools that give a basic indication of how much a homeowner could receive from a reverse mortgage; it is an estimate only.
- Online reverse mortgage calculators assume you have good credit, no more than two homeowners, no property tax arrears, and that current lending practices have not changed since the last calculator update.
- You should avoid reverse mortgage calculators that require you to provide your contact information before you can view your results.
Introduction
The popularity of reverse mortgages in Canada has been on the rise, with a 35% growth in 2022 according to the Office of the Superintendent of Financial Institutions. Primarily used for debt consolidation or home renovations, reverse mortgages offer a financial solution for homeowners over 55 years of age.
In this article, we will guide you on how to use a reverse mortgage calculator, a tool that can help you evaluate the suitability of a reverse mortgage for your situation.
What is a Reverse Mortgage?
A reverse mortgage is a loan that allows homeowners over age 55 to convert part of their home equity into cash. Unlike a traditional mortgage, there are no monthly payments. Homeowners can receive the funds as a lump sum or use it as a line of credit.
The loan is repaid when the homeowner sells the house, moves out, or passes away. For more detailed information on Canadian reverse mortgages, you can read articles written by our reverse mortgage experts: the benefits of reverse mortgages, how reverse mortgages work and how reverse mortgages differ from HELOCs.
Overall, reverse mortgages have several pros and some cons. On the positive side, they provide a steady income stream for homeowners, and there are no monthly payments. They are designed to provide seniors with a dignified retirement lifestyle.
However, the interest rates for reverse mortgages can be higher than traditional mortgages, and the loan amount is capped based on the value of the home and the age of the borrower.
We’ve written a fair amount on this aspect of reverse mortgages. If you want more details, you can read more on the pros and cons of reverse mortgages in Canada.
Why Use a Reverse Mortgage Calculator?
A reverse mortgage calculator can help you make informed decisions about your financial future. It helps calculate reverse mortgage eligibility and provides an estimate of the potential loan amount, helping you evaluate if a reverse mortgage could meet your financial needs.
It's a great way to explore reverse mortgages, reverse mortgage alternatives and understand the repayment options. Of course, the calculator is just a first-step. You should use it for the beginning of your research and then follow up by contacting a reverse mortgage specialist.
How Does a Reverse Mortgage Calculator Work?
A reverse mortgage calculator is a convenient tool that estimates the amount of money you could receive from a reverse mortgage. It uses inputs such as your age, estimated property value, and property location.
The calculator cross-references these inputs against current lending matrices, taking into account current reverse mortgage interest rates and real estate trends. Remember, the calculator provides an estimate, not a guaranteed loan amount! Most reverse mortgage lenders have provided calculators prominently on their websites. Unfortunately, each lender created a reverse mortgage calculator that focuses on their own products.
When designing our own reverse mortgage calculator, we took that limited scope into account. We also noticed that many websites were collecting contact information from site visitors who wanted to use the calculator. With those observations in mind, we designed the RetireBetter reverse mortgage calculator.
It's a great way to get a rough idea of how much you could potentially receive from a reverse mortgage without having to visit multiple websites or commit to anything. And we made sure that our free tool could be used easily without providing any personal contact information.
Remember, you should be cautious about filling out forms asking for your personal contact information. Many lenders and mortgage brokers who offer reverse mortgages will use the calculator to collect your contact information for sales purposes.
At RetireBetter, we provide optional contact forms for visitors so they can decide to contact us when they feel comfortable.
Factors to Consider When Using a Reverse Mortgage Calculator
- Property Value: The more your home is worth, the larger your potential loan amount.
The reverse mortgage calculator will use your estimate of your property's value to calculate the potential loan amount. Remember, your loan amount will be a percentage of our property’s value.
- Interest Rates: Higher interest rates may reduce your loan amount as it increases the long-term interest costs.
The reverse mortgage calculator takes into account the current reverse mortgage interest rates and will adjust the loan amount so the loan balance will not become greater than the expected future value of the property..
- Borrower Age: Older homeowners may receive a larger loan amount.
Younger homeowners may receive less to ensure the loan balance doesn't outgrow the property value over time.
Things to Know About a Reverse Mortgage Calculator
The calculator's output is based on your inputs and assumptions. Your actual loan amount will be based on a property appraisal, not your estimate of the property value. This appraisal will take into account recent sales of comparable properties and will also take your property’s condition into account.
The calculator also assumes you have good credit. The maximum loan amounts shown on the calculator assume you have a good credit score - if you have bad credit, those maximum loan products will not be made available to you
The calculator also assumes there are no more than 2 homeowners. If you have 3 or more homeowners, then their ages will need to be considered and may affect your potential loan amount.
The calculator also assumes you have no property tax arrears. If you have not been making your property tax payments, then your potential loan amount may be reduced or the lender may impose a “holdback” where you do not receive all of the funds at once until certain conditions are met. These holdbacks may also be required if the property condition is poor and repairs are required.
One final point to know about these calculators: they may not be updated regularly on websites! If lending conditions change, your online calculator may not reflect actual lending practices being offered by lenders.
What If I Need More Money than the Reverse Mortgage Calculator Says I Am Eligible For?
If you are looking for a certain amount of money from a reverse mortgage and the online calculator suggests you do not qualify for that amount, then you should contact a reverse mortgage specialist. You can obtain a reverse mortgage directly from the lender or by working with mortgage brokerage that is experienced in reverse mortgages. The above situation is exactly when you need to speak with a reverse mortgage specialist.
RetireBetter is one of the largest reverse mortgage specialty groups in Canada. As a mortgage brokerage that focuses on reverse mortgages, they are not limited to the products of a single lender.
If you are not receiving sufficient funds from an online reverse mortgage calculator, RetireBetter has lending options that can offer higher loan amounts than the larger reverse mortgage lenders. If you work directly with the larger reverse mortgage lenders such as HomeEquity Bank or Equitable Bank, they will not be able to offer you such options.
Summary
A reverse mortgage calculator is a valuable tool for homeowners considering a reverse mortgage. It provides an estimate of the potential loan amount, and helps you make an initial decision about its suitability.
If you're considering a reverse mortgage, contact RetireBetter. Our experts can guide you through the process and help you understand your options.
