Using a reverse mortgage to access home equity can be one of the best investments homeowners can make—but how much money do you get from a reverse mortgage?
You can typically get access to about 40-60% of your home’s equity, less any outstanding loans.
In other words, you probably need more than 50% equity in your home to make a reverse mortgage worth it.See if you qualify.
What’s in this article?
However, the 50% number can be much lower or even a bit higher depending on a number of factors.
Are you approaching retirement? Concerned about how to maintain your lifestyle and cover expenses without a regular income? A reverse mortgage could be your financial solution.
Let’s look at the crucial factors that affect the amount you can receive from a reverse mortgage.
$100,000 existing loan
|Home Value||Existing Loan||Age 65||Age 75||Age 85|
$200,000 existing loan
|Home Value||Existing Loan||Age 65||Age 75||Age 85|
|$500,000||$200,000||Requires cash to close||$2,000||$55,000|
All figures are estimates based on the National Reverse Mortgage Lenders Association calculator May 19, 2023 and may not be accurate for your situation. Assumes max line of credit with a Monthly ARM. Contact a reverse mortgage lender for your quote.See how much money you can get from a reverse mortgage.
Quick refresher: What is a reverse mortgage?
A reverse mortgage is a useful home loan product that allows seniors over the age of 61 (62+) to borrow against the equity in their homes.
The most widely used type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), a government-insured program.
The Proprietary Reverse Mortgage is unique to the lender offering them, and they can exceed HECM limits, potentially providing much higher loan amounts.
With a reverse mortgage, you can receive tax-free funds that may be used for virtually any purpose, such as supplementing your retirement income, home improvements, or medical expenses.
Factors affecting how much money you get from a reverse mortgage
Each financial situation will have varying results as to how much they’ll get back. The following factors affect that amount.
Your home’s value
The appraised value of your home plays a fundamental role in determining how much you can access with a reverse mortgage.
Equity is the difference between your home’s value and your current mortgage balance. The higher the value of your home, the more equity you can access.
However, things can get tricky if your value drops or loan amount increases (which happens each month with a reverse mortgage). If your home’s equity falls enough, you have negative equity — meaning you owe more than it’s worth.
With a reverse mortgage, lenders want to make sure you have enough equity to last the rest of your life. Your eventual reverse mortgage limit, then, is capped by the home’s current value.Find out if a reverse mortgage is right for you.
Your current mortgage balance
A remaining balance on your primary mortgage means your lender will need to use your reverse mortgage proceeds to pay off that balance first. A significant existing mortgage balance will reduce the amount you can receive from your reverse mortgage.
You may even need to pay money at closing of a reverse mortgage. This might not be bad, though, since you are eliminating your monthly payment.
Age of the youngest borrower
The age of the youngest borrower is crucial in determining your loan amount, as lenders use it to estimate the loan’s duration, interest accrual, and repayment period. Older borrowers generally enjoy higher loan limits and can access more of their home’s equity than younger ones.
Your type of reverse mortgage loan
Which type of reverse mortgage loan you choose will affect the amount you receive. Fixed-rate and adjustable-rate mortgages (ARMs) are two distinct types of reverse mortgage loans that borrowers can choose.
A fixed-rate mortgage offers a consistent interest rate over the entire loan term, providing predictable interest rate accrual on the reverse loan. Conversely, an adjustable rate varies, so you don’t know how much interest will accrue each month unless you watch it carefully.
For reverse mortgages with a fixed rate, the borrower receives a lump sum payment, whereas an ARM allows for flexible payment options, such as monthly payments or a line of credit. The fluctuating interest rates in ARMs may influence the available funds, potentially altering the proceeds over time.
The payment option type you select for your reverse mortgage can impact the amount of money you receive. As you can see from the previous section, the type of reverse mortgage you choose will also dictate which kind of payment type you get.
There are three primary payment options:
- Lump-sum payment: This option involves receiving the entire loan amount upfront. However, this may result in a lower overall loan amount compared to other options.
- Line of credit: With this popular option, you can withdraw funds over time, similar to a credit card. A line of credit typically offers the highest loan amounts among the payment options and the amount available grows each year as you age.
- Monthly payments: This option provides regular payments over a specified term or for as long as you live in the home, falling in between the lump-sum and line of credit options in terms of the amount you can receive.
Lines of credit tend to offer the highest amounts, while lump-sum payments provide the smallest amounts. Monthly payments fall somewhere in between.
Current interest rates
Market interest rates play a vital role in determining the amount you receive. Lower interest rates mean less interest is added to the loan over time, and lenders will typically offer a higher loan amount upfront.
And the reverse is just as true—higher interest rates tend to result in lower loan amounts.
Reverse mortgage loans have closing costs similar to traditional mortgages. These costs are paid out of your loan proceeds, meaning the higher your closing costs, the less you’ll have to borrow.
Reverse mortgage: A powerful resource for senior homeowners
Understanding how much money you can get from a reverse mortgage is crucial in determining whether this financial solution is suitable for your unique situation.
You can make your best-informed decision about pursuing a reverse mortgage by considering factors such:
- Your home’s value
- Current mortgage balance
- Loan type
- Preferred payment method
- Current interest rates
A mortgage professional help you or your loved one get started and ensure that you find the best solution for your retirement needs. And the best place to start is right here—with My Perfect Mortgage.Talk to a reverse mortgage expert.