How is a Reverse Mortgage Loan Calculated?

Calculate Your Eligibility

A common question asked by senior homeowners when they are looking into a reverse mortgage loan is, “How much money can I get?” There are a few factors used when determining the amount of funds a borrower can receive. While no lender will allow you to borrow 100% of your home’s equity, the funds you receive from a reverse mortgage will only be a portion of your equity. To determine the maximum dollar amount available for a federally-insured reverse mortgage, the following criteria is used.

The age of the youngest borrower on the title or eligible non-borrowing spouse1

To qualify for a reverse mortgage loan, borrowers must be 62 years old and older. Lenders are required to use the age of the youngest borrower or eligible non-borrowing spouse to determine the eligibility amount. The loan only becomes due when the last borrower or non-borrowing spouse permanently leaves the home.

The lesser of the appraised value of your home, sales price, or the Federal Housing Administration (FHA) lending limit ($822,375 as of 1/1/2021)

For calculation purposes, lenders use the lesser of the home’s value or the Maximum Claim Amount (MCA) lending limit of $822,375. However, some lenders also offer proprietary or jumbo reverse mortgages. The amount varies by lender, but in some cases, a homeowner may be able to access up to $4 million.

Interest Rates

As with most financing options, the lower the interest rate, the more borrowing ability you will have. A lower interest rate will result in a higher calculation of the principal limit at the start of the loan allowing you to access more home equity upfront and over the life of the loan. It will decrease the amount of money that will be added to the balance of the loan.

The balance of the existing mortgage, if applicable, and other financial obligations

If you still have a mortgage on your home, it must be paid off using the proceeds from your reverse mortgage loan. If you don’t have a current mortgage, it increases the amount of money you may be eligible to receive. You also need to continue to reside in the home as your primary residence and continue to pay the required property taxes and homeowner’s insurance and maintain the home according to FHA requirements.

Additional Considerations used in the Calculation

The rate type you choose can also influence the amount of money you will receive with a reverse mortgage. With a fixed-rate loan, the loan proceeds are received in one lump sum. With an adjustable-rate loan, you can choose between tenure (equal monthly payments that continue throughout the life of the loan), term (equal monthly payments for a specified amount of time), a line of credit, or a combination of the above.

Are you interested in learning how much money you may be eligible to receive from a reverse mortgage loan? Call (800) 976-6211 to speak with a licensed reverse mortgage advisor.

Important Disclosures

1A 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.