When considering a loan for pensioners or retirees, information is crucial. A Reverse Mortgage calculator can be a good way for you to see the possible effect of a Reverse Mortgage over the short, medium and long-term.
Although no one can ever predict what will happen in the future, a Reverse Mortgage calculator is an effective tool for modelling what may be a likely outcome given the interaction of key variables in any Reverse Mortgage loan:
A Reverse Mortgage calculation will typically illustrate – at any given time during the loan term – the:
Please feel free to use the Seniors First online Reverse Mortgage Calculator to obtain your very own Reverse Mortgage calculation.
Like any other loan, interest will be charged on your Reverse Mortgage. The interest is charged at the applicable published variable market rate and will be added to the loan amount to calculate the overall loan balance, daily.
The interest rate on your Reverse Mortgage loan will vary depending on your chosen lender. Currently the range is between 6.24% and 6.30% per annum.
In the past, lenders offered a range of different interest rate options such as fixed, capped, and variable. But today, there are only variable interest rates available for Reverse Mortgage loans.
Being on a variable rate, a Reverse Mortgage may come with flexible repayment options and may not charge you for making extra repayments. This may allow you to repay the loan faster. Reverse Mortgage on variable rates may also include offset accounts or redraw facilities.
In comparison to the costs of getting a regular home loan, Reverse Mortgage costs are higher because of the structure of the loan. As of August 2018, the average rate for a Reverse Mortgage is 6.27% compared to the average interest rate for Residential Standard Variable (P+I) loans of 4.49%.
The setup cost for a Reverse Mortgage may vary between $1,000 and $2,000 depending on your chosen lender. This usually covers broker fees, legal fees, government charges, and application fee.
Bear in mind that the interest charges will compound monthly, with the interest charged on previous interest amounts that have been capitalised into the loan. Hence, you should make sure that you are using a Reverse Mortgage calculator [link to SF calcl] that will consider this compounding effect.
For example, if you borrow $50,000 against your home at age 70 on an interest rate of 6.27%, the loan balance could increase to $90,000 when you are 80 and have not made any repayments. This doesn’t include the charges or fees that may also accrue.
The Reverse Mortgage rate of interest on your loan is important, but it is only one factor of many that will determine the overall cost. Other factors include: whether you draw the funds as a lump sum, cash reserve or a regular instalment plan; any ongoing reverse mortgage fees; and your ‘longevity risk’ – how long you will need the reverse mortgage loan for.
Consult a Reverse Mortgage broker to fully understand the interest charges associated with this credit product.