Your user-friendly guide to Reverse Mortgages!
The amount of money you can borrow with a reverse mortgage (formally known as the FHA Home Equity Conversion Mortgage or HECM) is based upon three factors:
1) Age of the youngest borrower (minimum age = 62, or going to turn 62 within 120 days of closing the loan)
2) The appraised value of your home, or the FHA HECM limit of $636,150 – whichever is less.
3) Interest rate selected by the borrower
Take a look at the chart below. You can see that the available loan amount will increase as you get older. Likewise, a higher home value will also increase the amount you can borrow. FHA sets a maximum lending limit of $636,150, so even if your home is worth more, the highest value used to calculate your loan amount will still be $636,150. If your home value is above $1,000,000, it may make sense for you to consider a Jumbo Reverse Mortgage to take advantage of higher loan limits.
There are many different program choices with an FHA insured reverse mortgage, and your interest rate will vary based on upon whether you choose a fixed or adjustable rate program. Furthermore, you may be offered different rates within each program category. Now your instincts as a homeowner will probably tell you to take the lowest fixed rate you can get. However, in the reverse mortgage world, adjustable rate programs offer some distinct advantages with regard to increased cash available and credit line growth. For detailed information on program differences, read our article titled HECM fixed or variable rate loans… how do I choose?
If this all sounds complicated… it is! You see, the HECM program is not a one-size fits all loan. HECM is very flexible, and even allows for changes after the loan is closed. Every borrower has different needs. Some people need to pay off an existing mortgage, while others do not. Some may want monthly income, while others don’t need any money today, but want to set up a secure nest egg for future needs. It is important that you work with a skilled reverse mortgage specialist who can thoroughly explain your many options!
Let’s take a look at some sample loan amount calculations below…
Estimate how much money you can get by finding your age multiplier (table 1) and multiplying it by your estimated home value. As you can see from the examples in table 2, the amount of money available to you from a reverse mortgage ranges from 41% to 74% of the home’s appraised value depending on your age. The only way to get more cash out of your house, without a mortgage payment — is to sell it!
A few comments…
- Maximum loan amounts calculate the gross amount of cash available before loan fees are deducted. Most borrowers elect to have their loan closing costs paid through the loan, which will reduce the actual cash available to the borrower.
- The Maximum Loan Amount may differ from the Maximum Cash Available to you in the first year of the loan. FHA limits the available funds to borrowers in the first year to 60% of your maximum loan amount. Exceptions may apply to this rule if you are using the proceeds to pay off an existing mortgage. All remaining cash that is undistributed in year 1 becomes available to the borrower after 12 months for variable rate programs only.
For more easy-to-understand explanations about reverse mortgages, visit our website at www.62andUP.com. Scott and Shelley Weier are reverse mortgage specialists with over 55 years of combined real estate lending experience in the greater San Diego area. Contact us directly with your questions at (760) 814-1882.