How is the Loan Amount Calculated for a Reverse Mortgage?

How is the Loan Amount Calculated for a Reverse Mortgage?

An important question that is top of mind and frequently asked by seniors when they are looking into a reverse mortgage is How much money can I get?”  There are a few key factors that are used to calculate the loan amount a borrower can receive.  Keep in mind, no lender will allow you to borrow 100% of your home’s equity. The amount of funds you will receive from a reverse mortgage will only be a portion of your equity. The maximum dollar amount available for a federally-insured reverse mortgage is determined by using the following:

  1. The age of the youngest borrower on title or eligible non-borrowing spouse1
  2. The lesser of the appraised value of your home, sales price, or the Federal Housing Administration (FHA) lending limit ($765,500 as of 1/1/2020)
  3. Interest rates
  4. The balance of the existing mortgage, if applicable, and other financial obligations

Borrower’s Age

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.

Calculate Your Eligibility

Value of the home

For calculation purposes, lenders use the lesser of the home’s value or the Maximum Claim Amount (MCA) lending limit of $765,500. 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 Rate

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.

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.

If you may be interested in learning more about a reverse mortgage or even how much money you may be eligible to receive call (800) 976-6211 to speak with a licensed reverse mortgage advisor.  Or, you can also use our 2-step calculator.

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.