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Calculating Loan Proceeds

This guide explains how to calculate loan proceeds for reverse mortgages in ReversePilot, including principal limits, expected rates, and available proceeds.

Overview

Reverse mortgage calculations determine:

  • Principal Limit: Maximum amount available to the borrower
  • Expected Rate: Rate used to determine the principal limit factor
  • Available Proceeds: Amount available after set-asides and payoffs
  • Initial MIP: Upfront mortgage insurance premium (HECM only)
  • Servicing Fee Set-Aside: Reserve for monthly servicing fees

Accessing Calculations

  1. Navigate to the loan application
  2. Go to the Calculations section
  3. Review loan product settings
  4. Click "Calculate Loan" or "Calculate Principal Limit"

Principal Limit Calculation

For HECM Loans

The principal limit is calculated using:

  1. Maximum Claim Amount (MCA): Lesser of:
  2. Appraised value
  3. HECM lending limit for the area

  4. Sales price (if purchase)

  5. Principal Limit Factor (PLF): Determined by:

  6. Borrower's age (youngest borrower for joint loans)
  7. Expected rate

  8. Interest rate type (fixed or adjustable)

  9. Principal Limit: MCA × PLF

For Proprietary Loans

  • Uses custom PLF tables uploaded by administrators
  • May have different age requirements
  • State-specific factors may apply

Expected Rate

The expected rate is used to determine the principal limit factor.

HECM Adjustable Rate Loans

Expected rate calculation:

  • Index: Based on loan product configuration (1-month CMT, 1-year CMT, 10-year CMT)
  • Margin: Set in loan product configuration
  • Expected Rate: Index + Margin

HECM Fixed Rate Loans

  • Fixed rate set in loan product configuration
  • Expected rate equals the fixed rate

Treasury Data

The system automatically retrieves current Treasury rates:

  • 1-month CMT (Constant Maturity Treasury)
  • 1-year CMT
  • 10-year CMT

For detailed information, see HECM Interest Rates and Expected Rates.

Available Proceeds

Available proceeds = Principal Limit - Required Set-Asides - Payoffs

Required Set-Asides

Initial MIP (HECM Only)

  • 2% of Maximum Claim Amount for loans with initial MIP
  • Or 0.5% if borrower chooses to finance MIP

Servicing Fee Set-Aside

  • Monthly servicing fee × Life expectancy factor
  • Ensures servicing fees can be paid over loan term
  • Typically $30/month for HECM loans

Property Charge Set-Aside (LESA)

If required:

  • Property taxes
  • Homeowners insurance
  • HOA fees
  • Other property charges

Payoffs

  • First mortgage balance
  • Second mortgage balance
  • Other liens
  • Closing costs (if financed)

Calculation Examples

Example 1: HECM Adjustable Rate

Inputs: - Borrower age: 75 - Appraised value: $400,000 - HECM lending limit: $1,089,300 - Expected rate: 5.5% - Initial MIP: 2% - Servicing fee: $30/month

Calculation: - MCA: $400,000 (lesser of appraised value and lending limit) - PLF: ~0.55 (based on age 75 and expected rate 5.5%) - Principal Limit: $400,000 × 0.55 = $220,000 - Initial MIP: $400,000 × 0.02 = $8,000 - Servicing Set-Aside: $30 × 12 × 10 = $3,600 (approximate) - Available Proceeds: $220,000 - $8,000 - $3,600 = $208,400

Example 2: HECM Fixed Rate

Inputs: - Borrower age: 70 - Appraised value: $500,000 - Fixed rate: 6.0% - Initial MIP: 2%

Calculation: - MCA: $500,000 - PLF: ~0.50 (based on age 70 and rate 6.0%) - Principal Limit: $500,000 × 0.50 = $250,000 - Initial MIP: $500,000 × 0.02 = $10,000 - Available Proceeds: $250,000 - $10,000 = $240,000 (before other set-asides)

Understanding the Results

Principal Limit

  • Maximum amount available over the life of the loan
  • Can be taken as:
  • Lump sum
  • Line of credit
  • Monthly payments
  • Combination

Available Proceeds

  • Amount available at closing
  • After all required set-asides
  • After payoffs of existing liens
  • After closing costs (if financed)

Set-Asides

  • Required reserves for:
  • Mortgage insurance
  • Servicing fees
  • Property charges (if applicable)

Factors Affecting Calculations

Borrower Age

  • Older borrowers = higher principal limit
  • Youngest borrower's age used for joint loans
  • Minimum age: 62 for HECM, varies for proprietary

Interest Rate

  • Lower expected rate = higher principal limit
  • Fixed rates typically result in lower principal limits than adjustable
  • Rate changes affect available proceeds

Property Value

  • Higher value = higher principal limit (up to lending limit)
  • Appraised value used (not sales price, unless purchase)

Loan Product

  • Different products have different:
  • PLF tables
  • MIP rates
  • Servicing fees
  • Age requirements

Recalculating

Recalculate when:

  • Borrower information changes
  • Property value changes
  • Interest rates change
  • Loan product changes
  • Payoffs change

Calculation Accuracy

The system uses:

  • Official HUD PLF tables for HECM loans
  • Current Treasury rates
  • Accurate life expectancy data
  • Proper compounding methods

For detailed calculation methodology, see: - Amortization Schedule Calculations - HECM Interest Rates - Expected Rates

Troubleshooting

Calculation Not Working

  • Verify all required fields are entered
  • Check borrower age meets requirements
  • Ensure property value is entered
  • Verify loan product is configured correctly

Unexpected Results

  • Review loan product settings
  • Check expected rate calculation
  • Verify borrower age
  • Review set-asides and payoffs

Discrepancies with HUD Calculator

  • Verify using same inputs
  • Check expected rate matches
  • Ensure using correct PLF table
  • Review set-aside calculations

For more help, see Calculation Issues.

Best Practices

  1. Calculate Early: Calculate loan proceeds early in the process
  2. Verify Inputs: Double-check all input values
  3. Document Changes: Note any manual adjustments
  4. Recalculate When Needed: Update calculations when data changes
  5. Review Set-Asides: Understand what's being set aside and why

Next Steps

After calculating loan proceeds:

For detailed calculation methodology, see the Calculations Documentation.