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The first example provides a 55-percent LTV, while the second example is a 35-percent LTV. The answer to how much they can borrow comes from the reverse-mortgage software calculators. When the property value is more than the lending limit, the maximum loan is based on age and interest rate. Property values that are more than the lending limit will have no bearing on the amount of loan approval on both the FHA Home Equity Conversion Mortgage and Fannie Mae's Home Keeper.
Using the same information as above for Dorothy in the first example, let's make her a little older:
Dorothy is 82 years old and owns a home with a value of $315,000. Based on a rate of 5.34 percent, she qualifies for a loan of $240,298.
Because Dorothy is 20 years older in this example, she now has a loan amount that is 37 percent more. The LTV now increases to 76 percent. If we also make Burt 82 years old, his LTV would now be just 48 percent -- his loan amount would be the same as Dorothy's.
So forget about LTV. It is not a factor in the approval of reverse mortgages; it is merely a result of the process. To get familiar with possible results, try using the reverse-mortgage calculators at the National Reverse Mortgage Lenders Association (www.reversemortgage.org). Plug different values into the calculator to get a feel for them.
Reverse mortgages are helping a growing number of seniors to enjoy their golden years in the comfort of their homes. Learn all you can about this product so you can give accurate professional advice to your clients.
Philip E. Lipp is president of Allwest Mortgage in Los Angeles and has been in the mortgage business with his wife, Ilene, for 21 years. He participated in the Los Angeles Mayor's Office's Predatory Lending Initiative to inform seniors. He is a founding director and past president of the California Association of Mortgage Brokers. For questions about reverse mortgages, call (818) 752-0999 or e-mail email@example.com
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