How Much Can You Borrow from a Reverse Mortgage?

Reverse mortgages have a number of different factors that go into the determination of the borrower’s benefit amount, or the loan amount that they will ultimately receive.  The property value is one of those factors, but so too is the borrower’s age, interest rates at the time, the program that the borrower chooses, fees associated with the loan (not just the origination fee but also whether or not there is a servicing fee), and also the program the borrower chooses.

Since you are able to live in the home for the rest of your life without having to make a mortgage payment on the loan, the benefit amount or loan amount for a 62 year old borrower is much less than for an 82 year old borrower.  The program is based on actuarial tables based on the age of the youngest borrower to be on the loan.  If there is more than one borrower, then the benefit amount would be derived by taking the youngest borrower’s age into consideration.

The next factor that goes into the calculation for the reverse mortgage benefit is the interest rate.  Right now all rates are below HUD’s “floor” of 5% so all the amounts are going to be the same at all rates available, but when rates again go over 5%, the amount available to borrowers will begin to drop as the rate rises.  The interest will accrue faster at higher rates so at these higher rates borrowers will receive less money under the program.

Finally, the program you choose will affect how much money you receive.  The only fixed rate loan available is the Saver Program (which is also available as an adjustable line of credit or monthly payment).  HUD implemented the Saver Product for borrowers who did not need all of the proceeds available to them in the Standard Program and in recognition of the lower risk of the lower proceeds, drastically reduced the Up-Front Mortgage Insurance Premium for that loan.

Finally, HUD does change the program every so often.  There have not been any changes to Principal Limits (the amount borrowers receive) for a couple years but it does happen.  It is easy to go online and find a free reverse mortgage calculator such as the one at ALLRMC to run different scenarios at any given time based on current market conditions rather than counting on a set percentage, only to find out that there has been a change in one or more of the factors on which you were counting later.

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