How Much Money Can Be Borrowed in a Reverse Mortgage
In general, the more your home is worth, the older you are and the lower the interest rate, the more you'll be able to borrow. But there are certain limitations both on the home value and on the interest rate.
The system will look first at your home value. If it is more than the FHA limit, it will start at the limit. If it is below the limit, it will start with the home value. Then it will take into consideration the age of the youngest borrower and the current interest rate. However there is a 'floor' to the rate that is considered. As of 10/4/2010, the floor was reduced from 5.5% to 5.0%. If the rate is below 5.0% the calculator will use 5.0%.
(Update effective 9/30/2013) We now have one basic type of Reverse Mortgage with four versions (below) and multiple variations (See 2014 Updates) .
- HECM Adjustable Rate using less than 60% of available funds in the first year.
- HECM Adjustable Rate using more than 60% of available funds in the first year.
- HECM Fixed Rate using less than 60% of available funds in the first year.
- HECM Fixed Rate using more than 60% of available funds in the first year.
The difference between the use of more or less than 60% of the funds is how much the MIP (Mortgage Insurance Premium paid to FHA) costs up front. All other guidelines you've read about on this site apply. At under 60% usage, the MIP is 0.5% of the loan amount. On the max FHA limit of $625,500, that amounts to $3,127.50. At 60% or more, the MIP rate is 2.5%. On the same $625,500, that amounts to $15,637.50. If the borrower has a choice, care should be used before taking 60% or more in the first year.
While you are limited to 60% of the available amount in the first year, more than 60% is allowed if your mandatory obligations (think mortgages and such) exceed that 60% limit.)
All HECM Reverse Mortgages have a graduated Origination Fee with a maximum of $6,000. The Other Costs (what I call third party fees) will vary depending on what the third parties (appraiser, escrow companies, county recorder, etc) charge. The Annual MIP is 1.25%.
Use my calculator to give you a quick picture of how much money you can get. (May not be accurate as vendors are updating the online calculators to the new system.)
To avoid the detail and get to the bottom line, move your eyes down to the 3rd group of numbers. The 'Net Available Principle Limit' is how much you get after fees and paying off your mortgage(s). If it has a minus number in front of it, it means you owe that much more than is available to you.