How Much You Can Get From a Reverse Mortgage. The amount of money you can get from a reverse mortgage usually ranges from 40% to 60% of your home's appraised value. The older you are, the more you can receive because loan amounts are based on your age and current interest rates.
A reverse mortgage increases your debt and can use up your equity. While the amount is based on your equity, you're still borrowing the money and paying the lender a fee and interest. Your debt keeps going up (and your equity keeps going down) because interest is added to your balance every month.
The 60% Utilization Rule
Home equity conversion mortgage HECM borrowers may only take the greater of 60% of their total available equity or the total amount of their mandatory obligations plus 10% in the first payout.
How Do Reverse Mortgages Work? Most require no repayment for as long as you live in your home. They are repaid in full when the last living borrower dies, sells the home, or permanently moves away. Because you make no monthly payments, the amount you owe grows larger over time.
If your reverse mortgage loan is in default and you've received a notice that the loan is “due and payable,” you may sell your home for 95 percent of its appraised value.
Alternatives to a reverse mortgage include home equity loan, home equity lines of credit, and cash-out refinances. These financial products can help you tap the equity in your home to use as cash for other purposes.
Can I run out of money with a reverse mortgage? Yes, the amount of borrowed funds can dry up in this case. However, you can in fact remain in your home should this happen—provided you continue to live there, maintain it, and stay current on required taxes and insurance.
The problem, say advocates, is that many senior homeowners don't understand the fine print in a reverse mortgage. Some wrongly assume the lender will pay the taxes and insurance. But fall behind on those payments or fail to maintain the home, and the lender can foreclose.
Suze Orman's opinion on reverse mortgages
She has spoken out against these loans on numerous occasions, warning that they can be a risky financial decision for many older Americans. One of Suze's main concerns with reverse mortgages is that they can be incredibly expensive.
A reverse mortgage may be a good idea if:
You and your spouse/partner are both 62 or older. You are in a strong financial position. You are able to physically maintain your home.
You can choose to receive the money all at once, as a lump sum. You can receive equal monthly payments as long as one of the borrowers continues to occupy the property as a principal residence. You can choose to receive equal monthly payments for a fixed period of months.
Typically, you are charged a higher interest rate on a reverse mortgage than for a standard home loan. How will I be charged interest? You will be charged interest on the loan amount you borrow. Fees and interest are added to the loan balance as you go, and the interest compounds.
The interest rate on a reverse mortgage is usually higher than on a home equity line of credit. Be sure to compare solutions. Interest rates may increase or decrease over time. Since you aren't required to repay the loan before the maturity date, interest keeps accruing and can end up being a significant cost.
One of the top benefits of a reverse mortgage is that monthly payments are optional2 – so having a high credit score is not required. While there is no minimum credit score to be eligible for the loan, you will be subject to a credit check as part of the Financial Assessment.
Yes, If you move to a nursing home for more than 12 consecutive months, the reverse mortgage may become due. You will have to pay the loan amount off by selling the house or any other asset. If the loan is not paid off, the lender may foreclose on the property.
Typically, a reverse mortgage doesn't need to be paid back until you move out of the home or pass away. At that point, you or your heirs will pay back the amount borrowed as well as interest and fees accumulated over time.
Myth #1: The Lender or Government Will Take My Home
With a reverse mortgage, you or your estate continue to retain control and remain on the title of the home. As with any loan, the lender simply puts a lien on the property to ensure the loan gets repaid.
If the end of your term is up before you pass away, then you have outlived your reverse mortgage proceeds. With a term payment plan, you reach your loan's principal limit—the maximum you can borrow—at the end of the term. After that, you won't be able to receive additional proceeds from your reverse mortgage.
Who is not a good candidate for a reverse mortgage? A reverse mortgage is a questionable proposition if you have sufficient income to pay your bills or are willing to sell your home to tap into the equity. If that's the case, it may make more sense to just sell it and downsize your home.
There are three options: federally insured, single-purpose, and proprietary. While they all allow you to tap into your home's equity, they differ in several ways. Let's take a closer look at each to help you understand your reverse mortgage options.
Traditional reverse mortgages limit how much a borrower can receive in the first year to 60 percent of the total loan amount. With a jumbo reverse mortgage, borrowers can receive 100 percent of the total loan amount in the first year.