Table of Contents
- Key Factors
- What is the maximum loan amount?
- Disbursement options
Reverse mortgages are a great way to secure a steady stream of retirement income, whether as your primary source of funding or as a supplement to other forms of cash flow. However, given that many retirees plan to rely heavily on reverse mortgage proceeds to fund their retirement, it’s important to know exactly how much you can expect to receive from your reverse mortgage policy.
In this post, we’ll explain. Read through for a guide to the factors that go into determining the amount your reverse mortgage will be worth. Or, if you’d prefer a quick answer, check out our reverse mortgage calculator, which can give you an estimate on the amount you may be able to receive — and it’s totally free.
- A few factors help to determine the value of your reverse mortgage: your age, the appraised home value, loan to value ratio, interest rate, method of disbursement, and taxes & fees.
- The maximum claim amount on an HECM loan is $822,375.
- If your property is appraised higher than that, you may need a jumbo reverse mortgage.
- The method of disbursement can affect the exact amount you receive. They are: lump sum, monthly installments, and a line of credit.
- If you’re not sure how much you can expect to receive from a reverse mortgage, it’s always a good idea to work directly with a GoodLife Reverse Mortgage Specialist.
How much money do you get from a reverse mortgage? Reverse mortgage amount limits are determined by a complex matrix of factors that all must be calculated in order to provide you with a fair and effective loan product. Let’s start by explaining the most important factors that we consider.
There are a few key factors that will determine the amount you are eligible for when taking out a reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM) loan. Understanding how they factor into your financial situation is an important part of determining whether a reverse mortgage is right for you.
In order to qualify for an HECM loan, you must be at least 62 years of age. Note, however, that spouses may be younger than the primary borrower if the borrower is at least 62.
Age doesn’t just affect eligibility, though. It can also be a factor in determining the amount you’ll be able to borrow. The older you are, the more money you are able to borrow with a reverse mortgage.
Value of the home
The appraised property value of your home secures reverse mortgage disbursements. So, the value of the home is another important factor in determining the amount you are able to borrow with a reverse mortgage. As appraised home value increases, the size of the loan you can take out increases as well.
How much equity do you need for a reverse mortgage? It varies, but typically over 50%. The amount of equity you have will also affect the value of your loan.
Loan to value ratio
Reverse mortgages allow you to access home equity, though not the full amount. The amount of your home’s value you can access is sometimes called the reverse mortgage maximum loan to value, or LTV. GoodLife Home Loans offers competitive LTV across our HECM and other reverse mortgage products, ensuring you gain access to a greater amount of your home’s value.
Interest rates can also have an effect on the amount of your home equity you are able to tap into effectively. The lower your interest rate, the more of your appraised property value you will be able to harness for an HECM loan.
Method of disbursement
Depending on the specific method you choose to use for your HECM disbursements, the amount your receive may vary. HECM loans can be paid out as a lump sum, in monthly installments, or as a line of credit. Because monthly installments and lines of credit have variable interest rates, the exact value of your loan over time may vary as compared to the fixed-interest lump sum option.
We’ll cover more about the different forms of reverse mortgage payouts in a later section.
Taxes & fees
Like any financial product, reverse mortgage loans often involve a few different taxes and fees that must be paid in order to secure your loan. However, at GoodLife, we offer competitive rates and minimal fees, allowing you to access a greater portion of your home’s equity than you might at another company that does charge copious fees.
What is the maximum loan amount?
The Home Equity Conversion Mortgage (HECM) program is federally insured and regulated by the Federal Housing Administration (FHA), and overseen by the Department of Housing and Urban Development (HUD). The FHA sets limits on the maximum amount that can be claimed through an HECM reverse mortgage.
- In 2021, The maximum claim amount is $822,375. This is an increase from 2020, up from $765,600.
A maximum claim amount (MCA) is the highest amount of home equity that the FHA will insure for an HECM loan. If your home is valued higher than this loan limit, you might not be eligible for the HECM reverse mortgage program.
However, that does not mean you’re out of options. Those whose property values exceed the yearly claim limits for an HECM may still be eligible for a proprietary reverse mortgage, sometimes called a jumbo reverse mortgage.
Jumbo reverse mortgages
Because the FHA oversees the HECM program, companies issuing this form of reverse mortgage must follow the guidelines that the federal body puts in place. This is because HECM loans are also insured by the FHA. The benefit of this is that the federal insurance allows reverse mortgage lenders, like GoodLife Home Loans, to offer highly competitive rates on their products. However, it also means that certain borrowers — like those with high property values — may be ineligible.
The good news is that Jumbo reverse mortgages are available to those whose homes are appraised above the claim limit of $822,375. Curious about whether your home is better suited for an HECM loan or a jumbo reverse mortgage? It’s always a good idea to speak with a GoodLife Reverse Mortgage Specialist to find out everything you can about your borrowing options.
And, speaking of borrowing options, there are a few more factors that go into determining the total amount of money you’ll receive from a reverse mortgage.
Depending on your financial situation, it might make sense to receive your reverse mortgage disbursements in one of the three available ways. When signing up for your policy, you will have the opportunity to speak with a GoodLife representative to help you determine which method of receiving proceeds is right for you.
The first option is fairly straightforward: a lump sum payment. Lump sum payments come with fixed interest rates, so you’ll know exactly how much you’ll owe once a maturation event occurs and it’s time to start paying back your reverse mortgage.
- Note: A maturation event is something that occurs that triggers a reverse mortgage’s due and payable status. These include the borrower moving out of the property or no longer using it as their primary residence, or the death of the borrower.
One risk that may come with using a lump sum option, however, is the potential for the borrower to outlive the funds disbursed. Be sure to speak with family, medical professionals, and financial experts to determine whether this is a concern you should weigh as you select your disbursement option.
You may also choose to receive your reverse mortgage payments in the form of monthly installments. These are monthly payments that you receive as you would disbursements from retirement accounts or pensions, and they are often used to supplement the cash flow a retiree receives from one of those sources of income.
Monthly payments are also advantageous for some retirees, as they allow them to only pay interest on the amount they actually receive, as opposed to a lump sum, which requires interest payment on the full value of the loan withdrawn.
Line of credit
Lastly, a line of credit is the third method that reverse mortgage proceeds can be disbursed to a borrower. In this form of disbursement, borrowers may receive the value of their loan through a line of credit that they can withdraw from. This functions similarly to other lines of credit, such as a credit card.
Similar to monthly payments, a line of credit allows borrowers to only use the portion of their loan value that they need as they go. Additionally, another benefit of this form of disbursement is that the total amount you can withdraw, thanks to an innovative credit growth feature. This allows the portion of your funds that you have not yet used to actually grow over time.
Knowing the amount of money you can expect from your HECM can seem confusing. We’re here to help. How much money can you get from a reverse mortgage on your property? Feel free to contact us — a Reverse Mortgage Specialist will be happy to help you work through your questions, and discover new ways to live the GoodLife in retirement.