Reverse Mortgage Calculator

What is a Reverse Mortgage?

A reverse mortgage is a financial product that allows retirees to unlock the equity in their homes without selling or moving. It provides access to a portion of the property’s value as a lump sum, regular payments, or a line of credit. Unlike traditional loans, repayment of a reverse mortgage is typically deferred until the borrower sells the property, moves into aged care, or passes away.

How a Reverse Mortgage Calculator Works

A reverse mortgage calculator helps estimate how much equity a borrower can access based on specific inputs. By analyzing key factors, it provides clear projections of borrowing potential and the financial impact over time.

Age of the Borrower: The older the borrower, the higher the percentage of property equity they can typically access. Lenders use age to calculate risk and allowable Loan-to-Value Ratio (LVR).




Current Property Value: The market value of the borrower’s home determines the total equity available. Higher property values generally allow for larger loans.




Loan-to-Value Ratio (LVR) Allowed by the Lender: Lenders cap the amount borrowers can access as a percentage of the property value. For example, an LVR of 20% might allow a 70-year-old with a $1 million property to borrow up to $200,000.




Interest Rate and Compounding Frequency: The calculator factors in the interest rate (fixed or variable) and how often it compounds (monthly, quarterly, or annually). Compounding frequency significantly impacts how quickly the loan balance grows.




Loan Term or Borrowing Period: The expected duration of the loan (e.g., 10, 15, or 20 years) helps estimate the accumulated interest and remaining equity over time.

Who Should Use a Reverse Mortgage Calculator?

Retirees:

Retirees can use the calculator to estimate how much equity they can access based on their age and property value.




It helps them understand the long-term impact of borrowing on their remaining equity and make informed decisions about funding retirement expenses, healthcare, or lifestyle needs.

Financial Advisors and Accountants:

Professionals use the calculator to craft tailored retirement strategies for their clients.




It helps them project borrowing amounts, interest accumulation, and equity depletion, enabling them to advise on whether a reverse mortgage aligns with their clients’ financial goals.

Mortgage Brokers:

Mortgage brokers leverage the calculator to clearly explain reverse mortgage options and their implications to clients.




It assists in comparing products from different lenders, helping clients choose the best option based on their unique circumstances.