When planning for retirement, a topic not to be overlooked is where do you want to live in your golden years? It was common for older adults to give up their bigger homes and move into smaller houses, allowing the younger generation to purchase these houses. However, data from a recent survey shows that 77 percent of older adults want to remain in their homes as they grow older.1
With many older adults wanting to age in place, a Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage, may be a good financial option for homeowners aged 62 and older. It will allow them to access a portion of their home equity and eliminate their monthly mortgage payments.2
How much money can you get?
There are a few factors used to calculate the loan amount. The amount of funds received from a reverse mortgage is a portion of the equity. No lender will let you borrow 100% of the home’s equity.
The maximum dollar amount available for a federally-insured reverse mortgage is determined by using the following:
- The age of the youngest borrower on the title or eligible non-borrowing spouse3
- The lesser of the appraised value of your home, sales price, or the Federal Housing Administration (FHA) lending limit ($970,800 as of 1/1/2022)
- The current interest rates
- The balance of the existing mortgage, if applicable, and other financial obligations
How can the money be used?
The proceeds from a reverse mortgage can be used however the homeowner decides.
- Pay for everyday living expenses
- Consolidate debt3
- Afford medical/prescription costs
- Cover large or unexpected expenses
- Make home improvements
- Set aside proceeds for an emergency fund
What are the disbursement options?
Borrowers can select to receive their funds4 in flexible disbursement options that can be used immediately:
- A line of credit that will grow over time5and can be accessed on an as-needed basis
- A lump sum of cash at closing (only available on fixed-rate loans)4
- Tenure – monthly payments for the life of the loan
- Term – monthly payments for a specific number of years
If you are interested in learning more about how a reverse mortgage may be able a source of funds to help while aging in place, call (800) 976-6211 to speak with a licensed loan advisor.
2 Your current mortgage(s) and any other existing liens against the property must be paid off at or before closing. You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.
3 A spouse must meet the following requirements to be considered eligible: 1) Be the spouse of the reverse mortgage borrower at the time of loan closing and remain the spouse of the borrower for the duration of the borrower’s lifetime. 2) Be properly disclosed to the lender at origination and specifically named as a Non-Borrowing Spouse in the loan documents. 3) Occupy, and continue to occupy, the property securing the reverse mortgage as the principal residence.
4 The funds available to you may be restricted for the first 12 months after loan closing. In addition, you may be required to set aside additional funds from the loan proceeds to pay for taxes and insurance.
5 This disbursement option is only available for a fixed rate loan.