Understanding the Mechanics of Reverse Mortgage Calculations

The primary determinant of the eligible loan amount is the FHA-approved mortgage limit specific to each county, which can cause significant variation across regions. The maximum loan amount is based on the lesser of the property’s appraised value or the FHA limit. To estimate the expected rate, the current 10-year LIBOR swap rate plus the lender's margin is considered, and the age of the youngest qualifying spouse influences the Principal Limit Factor (PLF).

When calculating total upfront costs, include the origination fee, closing costs, and initial mortgage insurance premium. Borrowers should evaluate whether they can afford these upfront expenses—some may cover costs externally, while others may include only part of the expenses in the loan. Additionally, factoring in life expectancy helps determine the borrower’s financial suitability. The final calculation involves summing the PLF, costs, and set-aside amounts to determine the available HECM credit, which can be disbursed as growth, tenure, or other payment options tailored to individual needs. Consulting a reverse mortgage counselor is advisable to ensure informed planning and understanding of the process.