Reverse mortgages can be a tricky tool to understand. Instead of paying back the loan over time, a reverse mortgage allows you to pay back the amount after you've moved out or died, when your estate is settled.
Since they work so differently from any other financial product, reverse mortgages have special rules about how much you can borrow. A few things go into calculating this amount for the most common type of reverse mortgage—a home equity conversion mortgage (HECM)—but one of the biggest factors is your age. You generally aren't eligible for a reverse mortgage until you reach age 62, and the older you are after that, the more you're often able to borrow.
- With a reverse mortgage, your loan balance grows over time, and the younger you are, the more time that balance has to grow.
- The amount you're able to borrow depends on your age and that of your spouse, as well as the interest rate your lender expects you to get.
- You won’t be eligible for most reverse mortgages until you reach age 62.
How Much Money You Can Get From a Reverse Mortgage
The amount of money you're allowed to borrow with an HECM depends on a few things. One important factor is the interest rate your lender expects you'll get. The lower the interest rate, the more you'll be able to borrow against your home.
However, an even more important factor is age—both your age and the age of your spouse, even if they won't be listed on the reverse mortgage. In that case, they'd be known as a "non-borrowing spouse."
Depending on your marital status and your spouse’s age, you’ll use one of two schedules that dictate how much you're allowed to borrow against your home:
- General table: Use this chart if you and your spouse are both age 62 or older, whether or not your spouse will be listed on the reverse mortgage, or if you’re not married.
- Special table: Use this chart if your spouse is age 18 to 61.
We’ve included a simplified version of the general table below. You can find full versions of both the general and special tables on the U.S. Department of Housing and Urban Development (HUD) website.
To use the general table, find the age of the younger spouse in the left column, then find your expected interest rate in the top row. The intersection will show the percentage of your home equity you may be eligible to borrow.
Other Reverse Mortgage Requirements
Reverse mortgages have several requirements you'll need to meet. It’s especially important to consider these additional requirements because they can affect how much money you have left after you pay the various fees and costs of taking out the reverse mortgage in the first place.
It's best, but not necessary, to have your home fully paid off before you get a reverse mortgage. In this case, you'd have 100% equity, but you may be able to get a reverse mortgage with as little as 50% equity. For example, if your home is worth $500,000, you wouldn't be eligible for a reverse mortgage until your first mortgage balance is less than $250,000.
If you still have a mortgage, you'll need to use savings or any funds you borrow to pay it off. This requirement can seriously cut into your loan amount and may even make it not worth getting a reverse mortgage.
For example, let's say your home is worth $500,000 and you're a solo 62-year-old borrower with an expected interest rate of 4%. In that case, you'd be able to borrow up to 47% of your home's value, or $235,000. But if you still owe $250,000 on your mortgage, there'd be no point in taking out a reverse mortgage because all of the loan proceeds would need to go to the first mortgage, leaving you with no extra money.
The maximum amount of money you can get from a reverse mortgage is based on your home's appraised value, up to a cap of $970,800. If your home is worth more than that amount, you won't be able to use that extra equity—or you can investigate a jumbo reverse mortgage.
Pre-Reverse Mortgage Counseling
Before you take out the reverse mortgage, HUD requires you to pay for a counseling session from an independent provider. The cost can vary. The counselor will fully explain to you how the reverse mortgage works, whether you can afford it based on your finances, and alternatives to reverse mortgages.
Mortgage Insurance, Origination Charges, and Other Fees
A reverse mortgage tends to be an expensive way to borrow money, even if you don't expect to pay it back in your lifetime. Just like with your first mortgage, a reverse mortgage comes with a host of closing fees, such as origination fees, appraisal costs, and recording charges.
You'll also need to pay two different types of mortgage insurance premiums: an upfront charge of 2% of the amount you're borrowing, and an annual charge of 0.5% of the balance. You can either pay for these fees out of pocket or roll them into your mortgage balance—but remember that the more fees you finance, the less money you'll have available to borrow.
Property Upkeep, Property Taxes, and Home Insurance
Since your lender can take possession of your home after you and your spouse (if you have one) are gone, they have a vested interest in making sure your home will be able to fetch a good price on the market. That's why you'll need to agree to keep up with regular repairs and maintenance on your home in order to get a reverse mortgage. You'll also need to stay current on your property taxes and homeowners association fees, and pay for homeowners insurance.
If you're not able to continue meeting these reverse mortgage requirements and your lender finds out, they can call the loan due early. If you can't pay it off in cash, the lender may foreclose on your home, and you'll need to find a new place to live.
Frequently Asked Questions (FAQs)
What are the income requirements for a reverse mortgage?
There are no specific income requirements for a reverse mortgage. However, a lender will check to make sure you can afford property taxes, homeowners insurance, and the upkeep on your home as conditions for getting the loan.
How do you pay back a reverse mortgage?
A reverse mortgage can be paid back in one of two ways. The home can be sold and the proceeds used to pay off the loan (usually after you and your spouse, if you have one, pass away). You can also voluntarily pay down the balance of the loan while you're still alive, or your heirs can pay it off if they want to keep the home.
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U.S. Department of Housing and Urban Development. “Home Equity Conversion Mortgages for Lenders (HECMs),” see “Principal Limit Factors,” see “On or After 10/2/17” (download), see “Introduction” tab.
U.S. Department of Housing and Urban Development. “Home Equity Conversion Mortgages for Lenders (HECMs),” see “Principal Limit Factors,” see “On or After 10/2/17” (download), see “General Table - 62 to 99” tab.
National Council on Aging. “A Guide to Reverse Mortgages for Older Adults.”
U.S. Department of Housing and Urban Development. “How the HECM Program Works,” see “Mortgage Amount Based On.”
U.S. Department of Housing and Urban Development. “How the HECM Program Works,” see “HECM Costs.”