This calculator provides an *estimate* of the net proceeds you might receive from a Home Equity Conversion Mortgage (HECM), often referred to as a reverse mortgage. It's important to understand that this is a complex financial product, and actual figures can vary based on lender-specific policies, fluctuating interest rates, and the specifics of your financial situation. This calculator is intended for educational purposes, in line with AARP's mission to provide reliable information to seniors.
How the Calculation Works (Simplified):
The core of a HECM calculation involves determining the maximum amount you can borrow, known as the Principal Limit. This limit is influenced by several factors:
Home Value: The appraised value of your home.
Age of the Youngest Borrower: Older borrowers generally qualify for higher loan amounts.
Current Interest Rates: Higher rates tend to result in lower initial loan limits.
HECM Program Type: Different HECM programs (Standard, Saver, Flex) have different calculation methodologies and may affect the initial loan amount and fees.
The calculator estimates the Initial Loan Amount based on a percentage of the Principal Limit, which you can adjust. From this, various costs are deducted to arrive at your estimated Net Proceeds. These costs typically include:
Origination Fees: These can vary significantly and are often a percentage of the home value or loan limit.
Servicing Fees: Ongoing fees charged by the loan servicer. The calculator uses the entered 'Servicing Fee Limit' as a proxy for initial costs.
Upfront Mortgage Insurance Premium (UFMIP): A federal requirement for HECMs, typically a percentage of the initial loan amount or home value, whichever is less.
Other Closing Costs: Such as appraisal fees, title insurance, recording fees, etc. (These are approximated in this calculator).
Formula Approximation: Principal Limit ≈ (Maximum Amount Available at Foreclosure Sale Date) – (Expected Rate Adjustment Factor) Initial Loan Amount ≈ Principal Limit * Initial Draw Percentage Estimated Costs ≈ (Origination Fee) + (Servicing Fee for first year) + (UFMIP) + (Other Closing Costs) Estimated Net Proceeds ≈ Initial Loan Amount – Estimated Costs Note: The actual FHA formulas are more complex and proprietary. This calculator uses simplified estimations based on common HECM parameters.
Important Considerations:
This is an Estimate: Your actual loan terms and proceeds will be determined after a full application, appraisal, and counseling session.
Consult a Professional: Always discuss your options with a HUD-approved HECM counselor and a qualified financial advisor.
Fees and Costs: Be aware of all fees, including upfront costs and ongoing charges.
Non-Recourse Feature: HECMs are non-recourse loans, meaning you or your heirs will never owe more than the value of the home at the time the loan is repaid.
function calculateHECM() {
var homeValue = parseFloat(document.getElementById("homeValue").value);
var borrowerAge = parseInt(document.getElementById("borrowerAge").value);
var loanProgram = document.getElementById("loanProgram").value;
var initialDrawPercentage = parseFloat(document.getElementById("initialDrawPercentage").value);
var interestRate = parseFloat(document.getElementById("interestRate").value); // Annual interest rate
var servicingFeeLimit = parseFloat(document.getElementById("servicingFeeLimit").value); // As a percentage of home value
var proceedsResultElement = document.getElementById("proceedsResult");
// — Input Validation —
if (isNaN(homeValue) || homeValue <= 0 ||
isNaN(borrowerAge) || borrowerAge < 62 ||
isNaN(initialDrawPercentage) || initialDrawPercentage 1 ||
isNaN(interestRate) || interestRate < 0 ||
isNaN(servicingFeeLimit) || servicingFeeLimit < 0) {
proceedsResultElement.style.color = "#dc3545"; // Red for error
proceedsResultElement.textContent = "Invalid input. Please check values.";
return;
}
// — Simplified HECM Calculations —
// These are heavily simplified estimations for demonstration. Real HECM calculations are complex.
// 1. Estimate Maximum Loan Amount (Principal Limit Proxy)
// This is a very basic approximation. Real formulas depend on HERA tables, interest rates, etc.
// For simplicity, we'll base it on a percentage of home value and age, with a slight rate adjustment.
var ageFactor = 0.015 * (borrowerAge – 62); // Small increase per year over 62
var baseLimitPercentage = 0.50 + ageFactor; // Starting point, increases with age
if (loanProgram === "saver") {
baseLimitPercentage *= 0.75; // HECM Saver has a lower initial limit
} else if (loanProgram === "flex") {
// HECM Flex is more variable, but we'll assume it's close to standard for this simplified model
// Real Flex has different draw options and fee structures.
}
// Adjust for interest rate (higher rates often mean lower principal limit)
var rateAdjustment = (interestRate – 4.0) * 0.05; // Crude adjustment, higher rate reduces limit
baseLimitPercentage -= rateAdjustment;
// Ensure percentage doesn't go below reasonable minimums or above maximums
baseLimitPercentage = Math.max(0.30, Math.min(0.85, baseLimitPercentage));
var estimatedPrincipalLimit = homeValue * baseLimitPercentage;
// 2. Calculate Initial Draw Amount
var initialDrawAmount = estimatedPrincipalLimit * initialDrawPercentage;
// 3. Estimate Costs (Highly Simplified)
// Origination Fees: Can be a flat fee or percentage. Let's estimate ~2% of home value or a capped amount.
var originationFee = Math.min(homeValue * 0.02, 6000); // Example cap
// Upfront Mortgage Insurance Premium (UFMIP): Currently 2% of the lesser of home value or initial loan limit.
var ufmip = Math.min(homeValue, estimatedPrincipalLimit) * 0.02;
// Servicing Fees: Often collected upfront for future servicing. Varies.
// AARP suggests up to 2% of home value for initial costs.
var initialServicingFee = homeValue * (servicingFeeLimit / 100); // Using the input percentage
initialServicingFee = Math.min(initialServicingFee, 4000); // Example cap
// Other Closing Costs (Appraisal, Title, Recording, etc.): Estimate ~1-2%
var otherClosingCosts = homeValue * 0.015;
otherClosingCosts = Math.min(otherClosingCosts, 5000); // Example cap
var totalEstimatedCosts = originationFee + ufmip + initialServicingFee + otherClosingCosts;
// 4. Calculate Net Proceeds
var netProceeds = initialDrawAmount – totalEstimatedCosts;
// Ensure net proceeds are not negative
netProceeds = Math.max(0, netProceeds);
// Format the result
proceedsResultElement.style.color = "#28a745"; // Green for success
proceedsResultElement.textContent = "$" + netProceeds.toLocaleString('en-US', { minimumFractionDigits: 2, maximumFractionDigits: 2 });
}