Reverse Mortgage Calculator 2024

How does a reverse mortgage work?

In a regular mortgage, you borrow funds from the lender to buy a house and then make payments throughout several years to the lender to pay off the debt and increase your stake in the house’s equity. The opposite happens in a reverse mortgage, where the lender makes the payments to you, and thus, you give up a portion of the house equity you own to the lender.

You receive the funds from the lender either as a lump sum, in monthly payments, or by a line of credit. Your loan balance increases throughout the years by the amounts borrowed, the interest fees charged, and the mortgage insurance premiums. You do not have to pay back the lender as long as you still live in the house. The loan is to be repaid when all the borrowers either die, move out, or sell the house.

Are reverse mortgages safe?

There are three types of reverse mortgages: FHA Home Equity Conversion Mortgages (HECMs), Proprietary Reverse Mortgages, and Single-Purpose Reverse Mortgages. The HECMs are the most popular ones because they are also the safest option. HECMs are government-backed mortgages from FHA-approved lenders.

HECMs are non-recourse loans, which means that the borrower or their heirs will never be liable for any amount borrowed that exceeds the value of the house. This makes HECMs very safe to use.

How much can I borrow with a reverse mortgage?

The total amount that can be borrowed through a reverse mortgage depends on several factors, such as the age of the youngest borrower, the interest rate, and the home’s value. You can use our Reverse Mortgage Calculator above to estimate how much you can borrow according to what payment plan you choose.

• Age: The older you are, the more you can borrow using a reverse mortgage. Your age and interest rate determine the principal limit factor, which shows the % of the home value you can borrow. The older you are, the higher the principal limit factor for a given interest rate. The minimum age to qualify for a FHA HECM is 62 years of age. The FHA also assumes a life expectancy of 100 years old.

• Home Value: The higher your home value, the more you can borrow. However, HECMs have a maximum home value of $822,375, so if your home is worth more, the amount that you can borrow will be limited to $822,375.

• Interest Rate: If you choose to get your funds as a lump sum, you would get a fixed interest rate, while the other plans have adjustable interest rates. The higher the interest rate chosen, the smaller the principal limit factor, thus the smaller the amount of funds you can borrow. With a fixed-rate reverse mortgage , you’ll need to pay interest for the entire amount borrowed, even if you didn’t need to borrow the entire amount all at once. For variable-rate reverse mortgages, you can borrow as little or as much as you need, and you’ll only pay interest on the amount that you actually borrow.

• Outstanding Debt: If you have an existing mortgage or any other outstanding debt, the reverse mortgage would be used to pay off that debt first. This will reduce the maximum amount that you will be able to use.

• Payment plan: If you want to receive the proceeds of the reverse mortgage as one lump sum payment, then you will not be permitted to use 40% of the principal limit. Instead, these funds will be deemed ‘unusable funds’. If you choose to receive the funds as monthly payments or a line of credit, there will be no ‘unusable funds’. However, it is important to note that even with a line of credit with no unusable funds, , you would not be able to withdraw more than 60% of the principal limit in your first year. The remaining 40% will be available in your line of credit to use after the first year. For the monthly payment plan, your monthly payments are calculated based on payments ending once you reach 100 years old.

• It is also important to note that if you leave a portion of the funds in a line of credit, the amount you don’t use will continue to grow by the interest rate plus the MIP rate.

• Location: Where you live helps to determine the closing costs related to the reverse mortgage. To determine the amount of cash you can actually borrow as an initial lump-sum, closing costs have to be deducted from your principal limit.