Step 1: Calculate Your Borrowing Power
Birth Date of Youngest Borrower: If two people are covered by the HECM contract, the birth date used must be that of the younger one because both have guaranteed lifetime tenure. Don’t be tempted to leave the younger spouse off the contract in order to increase your HECM borrowing power. In such case, the younger spouse will be obliged to vacate the home on the death of the older spouse.
Property Value: Be conservative in making your best guess. The value used in the HECM contract will be based on a professional appraisal.
Property Zip Code: This is used to find the set of HECM loan providers who can deal with you. Many of them operate in only one or a few states.
Existing Mortgage Balance and Liens: Report the balance from your most recent financial statement. A HECM requires that you accept a new first mortgage on your home, which means that any existing mortgage or mortgages must be paid off with proceeds from the HECM. This will use some, and in some cases it might even use all of your HECM borrowing power. However, unlike your existing mortgages, the HECM will have no required payment.
Years in House: This period is used to find the best combination of interest rate and settlement costs. The combination is selected that minimizes your HECM loan balance over this period.
Total Borrowing Power: This is based on your age, property value, and interest rate.
Other Mandatory Expenditures: FHA may require property improvements as a condition for insuring your HECM, which would also reduce HECM draw amounts dollar for dollar.
Mandatory Repayment of Existing Mortgage Balance: Any existing mortgage or mortgages must be paid off with proceeds from the HECM.
Regulatory Restrictions on Cash Draws: HUD limits the amount of cash that can be drawn within the first 12 months of a HECM closing. Since upfront cash draws are the only option on a fixed rate HECM, part of the borrowing power on fixed rate HECMs is unusable.
Estimated Growth During First 12 Months: Under current HUD regulations, some of the net borrowing power is not useable for 12 months. On adjustable rate mortgages, therefore, the amount of net borrowing power shown includes estimated growth during the first 12 months. This does not apply to fixed rate mortgages on which all cash draws must be upfront.
Available Borrowing Power: The available borrowing power is the credit line on an adjustable rate HECM that can be used to draw cash or purchase a monthly payment, but some of it may not be available for 12 months. On a fixed rate HECM, it is the amount of cash that can be withdrawn at closing.
TALC: This number is required by regulators. It is of no use to borrowers in making decisions about their HECM.
Ratio of Available Funds to Settlement Costs: Available Funds are the sum of initial credit line, mortgage balance repayment, other upfront cash draws, and the present value of the monthly payments.
Upfront Cash Desired: This is in addition to any cash required to repay an existing mortgage balance.
Monthly Payment: Monthly payments use borrowing power equal to the estimated present value of the monthly payments.
Credit Line: The amount you would like to reservce as a credit line for future use.
Credit Line Remaining: This is caculated as a residual given the desired cash withdrawal and monthly cash payment.
Credit Line: The amount available for future use. If untouched, the credit line grows with interest over time.
HECM Charges: The interest rate and settlement costs used minimize the borrower's cost over the period he expects to be in his house.
Other settlement costs: These include title insurance, closing agent fees, and recording costs.
Future Financial Status: Future financial status shows the borrower equity, credit line remaining in future years, and the borrower's conversion options.