Reverse Mortgage: How is the Loan Amount Calculated?

How much money can I get?” is usually one of the first questions adult homeowners ask when researching a reverse mortgage loan. A few key factors are used to calculate the loan amount that a borrower can receive. 

Calculate Your Eligibility

Keep in mind, lenders can’t allow borrowers to access 100% of their home’s equity. The funds received from a reverse mortgage will only be a portion of the home’s equity. To determine the maximum-dollar amount available for a federally-insured reverse mortgage, the following criteria are used.

Age of the youngest borrower or eligible non-borrowing spouse1

A reverse mortgage loan requires qualified borrowers to be 62 years old and older.  Lenders use the age of the youngest borrower or eligible non-borrowing spouse1 to determine the eligibility amount.  The loan only becomes due when the last borrower or non-borrowing spouse permanently leaves the home.

Value of the Home

Lenders use the lesser of the home’s value or the Maximum Claim Amount (MCA) lending limit of $970,800 for calculation purposes. In the event the home’s value exceeds the MCA, borrowers have the option of using a lender who offers 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.

Current Interest Rates

As with most financing options, the lower the interest rate, the more borrowing ability borrowers can have. A lower interest rate will result in a higher calculation of the principal limit at the start of the loan with access to 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.

Existing Mortgage Balance

If the borrower has a mortgage on their home, it must be paid off using the proceeds from the reverse mortgage loan. If there isn’t a current mortgage, it may increase the amount of money the borrower can receive.  Borrowers must continue to reside in the home as their primary residence, continue to pay the required property taxes, and homeowner’s insurance, and maintain the home according to Federal Housing Administration (FHA) requirements.

Additional Considerations used in the Calculation

The rate type can also impact the amount of money received with a reverse mortgage. With a fixed-rate loan, the loan proceeds are given in one lump sum. With an adjustable-rate loan, borrowers can select 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.