A reverse mortgage is a loan for seniors 62 years old or older. The loan may allow senior homeowners to leverage their home equity by accessing a portion of it as cash. Reverse mortgages may help to lessen the financial stress for retirees who are worried about outliving their retirement savings. The first question that many potential borrowers ask is, “how much money do you get from a reverse mortgage?”
The amount of money you may get from a reverse mortgage is determined by using the following factors:
- Current interest rates
- The age of the youngest borrower or eligible non-borrowing spouse1
- Your existing mortgage and other financial obligations
- The lesser of the value of your home or the current lending limit set by the Federal Housing Administration
Let’s Look at An Example2
Jack is 65 and his wife Suzy is 68. Their home is currently worth $300,000, and they owe $70,000 on their mortgage. They both want to retire but are concerned they do not have enough money saved to cover their expenses as they age. They have a friend who has a reverse mortgage and is pleased with the product. After hearing about her positive experience, they decide to reach out to a lender.
They speak with a lender about their financial goals and get a quote. Jack and Suzy qualify to access $115,327 of their home equity with a reverse mortgage. Since a reverse mortgage requires that there are no other liens on the property, they have to use the proceeds from their loan to pay off their conventional mortgage. After paying off their existing mortgage there is $45,372 that they can receive as cash, or they could use the funds as a line of credit that will continue to grow over time, which may help supplement their retirement income.
Eliminating a large expense, such as a monthly mortgage payment, may give them more freedom to use their retirement income how they want to.
How a Reverse Mortgage Can Reduce Financial Stress
According to a study by the United States Federal Reserve, reduced income from work and health-related expenses are the leading cause of financial stress for older adults.3A reverse mortgage may help to provide relief in these situations.
Reverse mortgage borrowers can choose between receiving their payments in a lump sum,4 monthly disbursements, or can choose to keep the funds in a line of credit.5 By selecting the monthly payment option, Jack and Suzy could mitigate the effects of a reduced income from retiring. They would get a check each month from their reverse mortgage proceeds that would help them pay bills, buy groceries, or cover any other expenses.
Reverse mortgage payments can be split into different disbursement methods. If Jack and Suzy are worried about reduced income and unexpected expenses, they can choose to put some of their reverse mortgage proceeds into a line of credit and receive the remaining portion as monthly payments.
If you are wondering how much money you may get from a reverse mortgage, try the calculator above to obtain an estimate or call 1 (800) 976-6211 and a licensed loan officer can provide you with a personalized loan assessment.
1 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
2 This example is based on a 65-year-old borrower, a variable rate HECM loan with an initial interest rate of 4.896% (which consists of a Libor index rate of 2.375% and a margin of 2.375%). It is based on an appraised value of $300,000, origination charges of $5,000, a mortgage insurance premium of $6,000, and other settlement costs of $2,673.
3 Insights into the Financial Experiences of Older Adults: Forum Briefing Paper. Board of Governors of the Federal Reverse System. https://www.federalreserve.gov/econresdata/older-adults-survey/July-2013-Financial-Stress-and-Well-Being-of-Older-Adults.htm
4 This disbursement option is only available for a fixed rate loan.
5 The funds available to the borrower may be restricted for the first 12 months after loan closing, due to HECM reverse mortgage requirements. In addition, the borrower may need to set aside additional funds from the loan proceeds to pay for taxes and insurance.