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Reverse Mortgage Glossary

Appraised Value

The appraised value is an estimated market value for a home as developed by a licensed real estate appraiser. Theoretically, the appraised value is what a home would likely sell for if listed on the open market.

HECM reverse mortgage lenders use the appraised value to establish the maximum claim amount, which is the starting point for determining how much money you can receive from a HECM reverse mortgage. The maximum claim amount always equals the appraised value or $625,500, whichever is less.

Reverse mortgage proceeds are calculated by multiplying a principal limit factor (which is determined by age of the youngest borrower and the expected interest rate) by the maximum claim amount to get the principal limit, which is the total pool of funds available. The funds in the principal limit are then allocated to existing mortgage balances, closing costs, and to the borrower in the form of lump sum, line of credit, or term or tenure payments.

The appraised value for owner-occupied 1-4 unit residential real estate is almost always developed using the sales comparison approach. The appraiser uses sales prices of similar homes (based on age, bedroom and bath count, condition, square footage, appeal, style, etc.) to establish a range of values. The final opinion of value will usually fall somewhere in the range based on the home’s amenities and condition.

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