When the idea of the reverse mortgage loan was first conceived in the early 1960’s, people quickly began to recognize that the concept was a brilliant answer to a common challenge. Many senior homeowners wanted access to their home equity to help fund retirement while remaining in their home—and a reverse mortgage loan could help them do just that. In addition, the loan proceeds would pay off any existing liens, thus eliminating the homeowner’s monthly mortgage payment. Borrowers are responsible for paying property taxes, homeowner’s insurance, and for home maintenance. The advantages were, and to this day still are, very appealing. But among many questions borrowers have, a popular one always surfaces first:
What amount of money can I actually get from a reverse mortgage?
This question is understandable, since borrowers are primarily interested in a loan that provides an amount high enough to help them achieve their financial goals. Read the following to learn how reverse mortgage loan proceeds are determined.
How Much Does a HECM Reverse Mortgage Loan Pay?
How much money you can access from a reverse mortgage will be calculated by a formula that takes into account the following key factors:
- AGE – You must be at least 62 years of age to be eligible. And because part of this calculation is determined by the estimated length of the loan, the older you are when you take out a reverse mortgage, the more cash you could have access to.
- HOME VALUE – Your home’s current appraised market value will help determine available loan proceeds. The higher the value, the higher the potential for cash.
- INTEREST RATES – Current interest rates affect how much money you receive. The lower the interest rate, the higher your available funds.
- FINANCIAL OBLIGATIONS – Fees and other financial obligations may also lower the amount you will receive. For example, if you have an existing mortgage balance left, it must be paid off first from your loan proceeds before you receive the rest.
- DISTRIBUTION TYPE – The type of distribution you choose, whether it be a lump sum, a partial sum, a line of credit, or a monthly disbursement, can affect your loan amount. The line of credit option typically gives you the highest possible proceeds, while the lump sum may give you the lowest.
Reverse Mortgage Loan-to-Value (LTV)
So what percentage of your home’s value can you actually access? Since there are a number of factors that determine how much of your equity you may access with this loan, there is no specified reverse mortgage LTV that you can expect. However, reverse mortgage professionals are equipped with tools to do this calculation for you, so we recommend calling your lender to learn what your reverse mortgage loan to value could be.
Reverse Mortgage Loan Limits
One important detail you may not realize is that there are loan limits in place for this financial product. Although there isn’t an exact reverse mortgage maximum loan amount, there is a limit for how much of a home’s value a reverse mortgage can borrow against, which will in turn affect the maximum loan amount possible. For the government-insured Home Equity Conversion Mortgage (HECM), the maximum reverse mortgage limit you can borrow against is $1,089,300 (Updated January 1, 2023), even if your home is appraised at a higher value than that.
How Much Equity Do I Need to Have?
Many senior homeowners with an existing mortgage wonder if they could be eligible for this loan product. The answer is yes, it could be possible. In general, homeowners who are over the age of 62 with 50-55% or more equity in their home could be eligible for a reverse mortgage. However, if there is still a significant mortgage balance remaining, then payout may be minimal. Because loan proceeds will always go towards paying off existing liens first, a reverse mortgage provides borrowers with the most disposable cash if the home is either paid off or the remaining mortgage balance is low.
Your exact reverse mortgage loan amount is most accurately identified by speaking with a reverse mortgage professional. This professional will educate you on the reverse mortgage process, understand your specific situation and will help calculate your reverse mortgage quote by considering all of the factors above. If you are ready to find out how much money you may be able to get from a reverse mortgage and learn more about this flexible retirement planning tool, call American Advisors Group at (888) 998-3147. Your reverse mortgage professional will be standing by to take your first step toward learning more about if a reverse mortgage is right for you.
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Gallagher, Mary. “What is the Loan to Value Ratio for a Reverse Mortgage?” Ehow.com. NP. ND. Web. 4 June 2015. http://www.ehow.com/info_8146990_loantovalue-ratio-reverse-mortgage.html
Sherman, Fraser. “Reverse Mortgage Lending Limits”. HomeGuides.SFgate.com. Demand Media. ND. Web. 4 June 2015. http://homeguides.sfgate.com/reverse-mortgage-lending-limits-9369.html
“FHA Reverse Mortgages (HECMs) for Seniors.” HUD.gov. U.S. Department of Housing and Urban Development. ND. Web. 4 June 2015. http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmabou