Reverse Mortgage Calculations: How Much Money Can I Get? What Are the Payment Options?
How Much Money Can I Get from a Reverse Mortgage?
The amount of money you can get with a reverse mortgage varies greatly from homeowner to homeowner.
The fastest way to estimate your reverse mortgage loan amount is to use a Reverse Mortgage Calculator. But only a lender will be able to give you an exact dollar amount.
Understanding Reverse Mortgage Calculations
Before calculating your reverse mortgage loan amount, it may help you to understand how reverse mortgage calculations are done.
The different HECM reverse mortgage programs (see below) yield different amounts of money.
Your reverse mortgage lender will determine your actual loan amount by using:
- Available HECM Reverse Mortgage loans
- The value of your home
- Prevailing interest rates
- The amount of any outstanding loans against your house
- Your age
However, there is a maximum loan amount – a loan limit – which is determined by law. As of 2017, the maximum limit on HECM reverse mortgages is $636,150, up from $625,500.
Why Isn t My Reverse Mortgage Loan Amount Equal to the Full Value of My Home?
There are two main reasons that, when you do reverse mortgage calculations, your loan amount will be less than you think it should be.
Home Ownership: When you get a reverse mortgage you still own your home. Home ownership means that you need to retain at least some of your home equity stake. If you were to borrow the full value of your home, that would be more like selling your house — which you probably do not want to do.
Retaining equity in your home gives you more flexibility for your future. These reserves could give you access to additional options to, such as downsize, relocate, or potentially leave an estate to heirs.
Payoff Current Mortgage: A reverse mortgage can be the only loan on your home. If you are still paying off your traditional mortgage, then part of your reverse mortgage loan must be used to pay off that existing mortgage.
An Example of Reverse Mortgage Calculations
So, if you are 65 and own a $300,000 home with $50,000 left to pay off on an existing mortgage, you might qualify for a reverse mortgage loan of around $150,000.
However, that does not mean that you automatically get access to $150,000. In fact, you MUST use $50,000 of your reverse mortgage loan amount to pay off your existing mortgage giving you the HUGE benefit of eliminating your ongoing monthly mortgage payments (improving your monthly cash flow).
Calculate your own loan amount with a reverse mortgage calculator.
Available Reverse Mortgage Programs
Currently, there is only one widely available reverse mortgage – the Home Equity Conversion (HECM) reverse mortgage.
Depending on your needs, there are 3 main variations of the HECM reverse mortgage:
1. The HECM Fixed Rate Reverse Mortgage: When you secure a reverse mortgage with a fixed interest rate, all loan proceeds must be used to either pay off an existing mortgage and/or be taken as up front cash.
2. The HECM Adjustable Rate Reverse Mortgage: The adjustable rate HECM reverse mortgage enables you to use your loan to pay off your existing mortgage and/or take all remaining loan proceeds as either a line of credit or annualized monthly lifetime payments. There are numerous advantages to taking your loan amount as a line of credit or monthly lifetime payments.
The advantage of a line of credit is that you only pay interest on the funds you withdraw, not the total amount that is available to you. And the money in the line of credit actually EARNS interest.
3. HECM for Purchase: In addition to the loans described above which are usually used on an existing home there is the HECM for Purchase program. HECM for Purchase enables you to use a reverse mortgage to buy a home instead of on your existing home. This program lets seniors potentially combine the benefits of downsizing with those of a reverse mortgage to eliminate their mortgage debt and find a home that suits their needs.
Reverse Mortgage Payment Options
Depending on your situation, you may have some options for how to receive any reverse mortgage proceeds. A reverse mortgage lender could help you design a program to meet your unique needs.
For an official estimate, contact a reverse mortgage lender by completing our information request form.
Options for accessing your home equity might include:
Payoff Your Existing Mortgage: As stated above, if you owe anything on your home, then a reverse mortgage must be used to pay off your existing mortgage. This is a key benefit to a reverse mortgage since it eliminates your traditional monthly mortgage payments.
Cash: The HECM Fixed Rate reverse mortgage enables eligible home owners to take out some cash, in a lump sum, from their home equity.
This cash can be used for ANY purpose. Although you make no monthly mortgage payments, interest charges accrue on the total loan amount every month you carry the reverse mortgage. Therefore, the total size of your loan will increase over time, though the total amount owed can never exceed the value of your home.
Monthly Income: Opting to receive monthly income from a reverse mortgage is similar to purchasing an annuity.
You can usually opt for Tenure or lifetime option for the monthly income. However, some lenders can also offer term options. A term option means that you will receive monthly income for a predetermined amount of time. With the term option you would likely receive a higher sum of money each month than you would receive with a lifetime or tenure option. To determine what income you could receive with a term option, contact a lender.
Home Equity Line of Credit: A credit line is money that you have available for use on anything at anytime. A credit line differs from cash in that you only accrue interest charges on the money that you use, not on the amount available to you.
A credit line is the most popular and in most cases the most cost efficient option for receiving a reverse mortgage loan because you choose how much money to take and when you want it. Interest is only paid on the costs of the loan and the amount you’ve taken out while the balance available continues to grow.
Use a Calculator or Talk with a Lender About YOUR Reverse Mortgage Calculations
A reverse mortgage lender is a great resource for doing accurate reverse mortgage calculations. They can help you design a program to meet your unique needs.
For an official estimate, contact a reverse mortgage lender by completing our information request form. Still have questions about the reverse mortgage calculator? Call us at 866-466-0203.