Mortgage  Question?
Rate of Return Used for Asset Depletion Mortgage

What rate of return do lenders use to calculate monthly income from assets for an asset depletion mortgage?

Harry Jensen
, Trusted Mortgage Expert with 45+ Years of Experience
Edited by Michael Jensen

Most asset depletion mortgage lenders use a 4% or 5% rate of return to calculate a borrower's monthly income from assets. Although a 4% to 5% return seems high compared to treasury rates, it is less than the rate of return provided by the stock market which has averaged approximately 7% historically.

The higher the rate of return used by the lender, the higher the income attributable to your assets and the higher the mortgage amount you can afford. It is important to understand the rate of return and income calculation methodology used by the lender before you apply for an asset depletion loan so you can determine the mortgage you qualify for.

Review How an Asset Depletion Mortgage Works

Please note that calculating the additional monthly income from your assets is similar to calculating the monthly payment for a mortgage. For example, for $500,000 in assets with a 4% rate of return over 15 years, the monthly income attributable to the assets is $3,698, which is also the monthly payment on a $500,000 mortgage with a 4% interest rate and 15 year term. 

We recommend that you contact several lenders in the table below to learn more about program availability and qualification guidelines. Lenders may use different rates of return and income calculation formulas so it is important to compare multiple proposals to choose the asset depletion mortgage that is right for you.

Current Mortgage Rates in Ashburn, Virginia as of May 18, 2024
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Rate data provided by Displayed by ICB, a division of Mortgage Research Center, NMLS #1907, Equal Housing Opportunity. Payments do not include taxes, insurance premiums or private mortgage insurance if applicable. Actual payments will be greater with taxes and insurance included. Read through our lender table disclaimer for more information on rates and product details.

We should point out that the rate of return method is one of two ways asset depletion lenders determine the monthly gross income to include in your loan application. With this approach, lenders apply a rate of return to your net eligible assets and divide the income by 85 minus your  age.

For example, if you are 60, the lender divides the income from assets (based on a fixed 4% or 5% rate of return) by 25 (85 - 60 years = 25) to calculate your monthly income from the assets. The income calculated using the asset depletion formula is added to any other income your earn such as from a job or pension.

The other method that asset depletion lenders use to calculate your income is to divide your net eligible assets by the length of your mortgage, in months. Please note that this method usually yields a lower monthly income from your assets than the rate of return method.

For example, if you have $500,000 in net eligible assets and apply for a 30 year mortgage, the lender divides the $500,000 in assets by 360 (30 years * 12 months per year = 360) to calculate the $1,389 in monthly income attributable to the assets, which in this example, is lower than your income according to the rate of return method.

Given the potential significant difference in income depending on the methodology used by the lender, your first step when speaking with asset depletion lenders is to determine the method that applies to you.

If they use the rate of return method, your next question should be what rate the lender uses. If the lender uses the assets divided by mortgage length method, you know you likely qualify for a lower mortgage amount, and you may decide to find a lender that uses a different methodology.

You can use the FREEandCLEAR Lender Directory to search over 3,900 lenders by mortgage program. For example, you can find top rated lenders in your state that offer asset depletion mortgages.


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About the author
Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR.  Harry is a licensed mortgage professional (NMLS #236752). More about Harry

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