NLIC.org

Suzanne Said:

formulae for reverse mortgage?

We Answered:

Let
Face value of mortgage = $180,000
Interest rate = 4%

But from [ http://www.reversemortgage.org/hecm.htm ] we know that "The
interest rate charged on a HECM is adjusted monthly or annually – the
borrower chooses. However, these adjustments don’t alter the monthly
payments that borrowers can receive (if they have chosen the monthly
payment option). Instead, the adjustment affects the total interest
that is charged on the loan, which is added to the loan balance while
the loan is outstanding and is paid when the loan becomes due."

So the per month income is determined by ONLY the interest rate at the
time when the reverse mortgage is granted...any other adjustments are
treated as described above. (No future value calculations)

In terms of a formula, monthly payments are calculated as follows:

incomePerMonth = (($180,000)*((1.04)^
(yearsLeftToLive)))/
(yearsLeftToLive*12)

Thanks for your question.

sureshkumar T