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Calculating How Much You Can Borrow With a Reverse Mortgage

Posted by Jaxon Kim Mar 30, 2022
elderly couple calculating reverse mortgage at kitchen table

A reverse mortgage can offer seniors, 62 and older, a stream of income to help pay expenses and achieve financial goals. With a reverse mortgage, you can tap into home equity to help fund retirement while also continuing to live in your home. But, how do you know if this is right for you? The first step to deciding is by calculating the amount you can borrow – and, that will depend on a number of factors.

Related: Reverse Mortgage: What Are the Pros & Cons?

Age

Age is going to play a big part in determining your loan payout. To begin the process, you must be at least 62 years old. And actually, the older you are, the more likely you’ll have significant equity to borrow from. So, the older the homeowner, the greater the percentage of home equity that can be borrowed.

Interest Rate

Most interest rates for this type of loan are adjustable. In turn, current rates will affect your proceeds. You should also expect lenders to add 1 to 2 percent to base rates.

Related: What is a Reverse Mortgage and How Does it Work?

Home Value

Your home’s appraised value is one of the largest determinants of how much a reverse mortgage will pay. The higher the appraised value of the home, the higher the loan. A person cannot typically use more than 80% of their home equity (based on its appraised value).

Distribution Method

There are several ways a senior can choose to receive their payment.

A line of credit offers a lower cost. Interest and fees are only paid on the money that is used. Credit lines have a growth feature that allows a person to borrow money immediately while leaving some for the future. Any unused funds will keep growing over time.

Equal monthly payments are just like an annuity. As long as one of the borrowers is living in the home, the lender will make steady payments.

A lump sum will pay the borrower the full amount of the loan at once with a fixed interest rate.

The Bottom Line On Calculating Your Reverse Mortgage Amount

The amount a reverse mortgage loan pays is different for each person. A reverse mortgage calculator can be a great resource to get started!

Before making any financial decisions, make sure to talk with family and any applicable professionals. For more info on reverse mortgages and retirement planning, visit these great articles and sites:

How To Choose Senior Housing In 5 Steps

Bob Carlson’s Retirement Watch

Reverse Mortgage: 3 Types For Seniors To Know About


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Posted by Jaxon Kim Mar 30, 2022 Posted in Personal Finance

Published by Jaxon Kim

Jaxon served as an editorial intern with Eagle Financial Publications, writing for www.stockinvestor.com and www.dividendinvestor.com. View more posts

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