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Reverse mortgage limits

If you’re a homeowner 62 years of age or older, you may be wondering, “How much can I borrow on a reverse mortgage?” The Federal Housing Administration’s (FHA) home equity conversion mortgage (HECM) loan limit maximum for 2021 is $822,375. 

The FHA insures HECMs, making them the only reverse mortgage programs backed by the federal government.

Calculating maximum reverse mortgage amounts

Your reverse mortgage maximum loan amount depends on several factors, including:

      • Your age. The reverse mortgage age minimum is 62. Older borrowers typically receive higher loan amounts
      • Your home equity. Reverse mortgages are best for borrowers with at least 50% equity in their home. Home equity is the difference between your home’s value and any mortgage balance you owe. 
      • Current interest rates. The lower the interest rates, the more you can borrow with a reverse mortgage. Reverse mortgages don’t require a monthly payment, so your loan balance grows instead of shrinking. If interest rates increase, the lender adds the extra interest to your loan balance, which cuts into funds you can borrow in the future. 
      • Your finances. While there’s no income requirement, lenders will review your financial situation and may require you to set aside funds for things like property tax and homeowners insurance . Similar to how an escrow account works on a regular mortgage, reducing the cash you have access to in the future.
      • The type of reverse mortgage you choose. There are three reverse mortgage types: HECMs, proprietary reverse mortgages and single-purpose reverse mortgages. While the FHA regulates FHA HECM loan limits, proprietary and single-purpose reverse mortgage limits vary.
      • How you access your funds. You can choose to receive reverse mortgage funds in a lump sum, as a line of credit or in monthly installments. There is a catch: Each option may limit or increase how much equity you can tap.

Calculating reverse mortgage limit for HECM

FHA-approved HECM lenders use a “principal limit factor” to calculate the reverse mortgage maximum loan amount based on the following factors.

    • The youngest borrower or spouse. Even if a spouse is not on the reverse mortgage loan, lenders consider their age. 
    • The interest rate on the loan. HECM rates are usually adjustable, which may make additional funds available if rates are dropping, or may cut your borrowing power if rates are rising. 
    • The appraised value of the home. Lenders request an appraisal which is an unbiased opinion of the home’s value, from a licensed real estate appraiser
    • The loan limit for your area. Regardless of your home’s value, the maximum claim amount for a HECM in 2021 is $822,375. 
    • The closing costs for the loan. Lenders can charge up to $6,000 in origination fees. The program also requires a 2% initial mortgage insurance premium (MIP) and an annual MIP charge of 0.5% of the balance that’s deducted each month from your loan proceeds. Most borrowers roll HECM closing costs into the loan, reducing the net available loan amount.

INFO YOU SHOULD KNOW

According to the Consumer Financial Protection Bureau (CFPB) guidance on reverse mortgages, older borrowers with higher-priced homes and lower interest rates usually receive higher loan amounts than younger borrowers with lower-priced homes and higher interest rates.

Maximum reverse mortgage loan amounts on other reverse mortgage types

Proprietary reverse mortgages

Private companies offer reverse mortgage programs with higher loan limits than HECMs allow. You may tap more equity from the outset than you would with a HECM, but proprietary reverse mortgages are often more expensive and don’t have any federal insurance backing. 

Single-purpose reverse mortgages

Some state and local governments offer special reverse mortgage programs to help homeowners pay past-due property taxes or make repairs to a home to make it safe and livable. Designed to meet specific homeowners needs, the programs may not be available in all states and the amount you can borrow depends on the program guidelines.

How to use a reverse mortgage calculator

The easiest way to determine the HECM amount you qualify for is to use a reverse mortgage calculator With six pieces of information, you’ll get a quick idea of how much you can borrow.*
  1. What age is the youngest title holder? Lenders base the maximum amount on the youngest homeowner, even if they aren’t on the loan.
  2. Type of property. Acceptable HECM property types include single-family homes, townhomes, condos, manufactured homes and multi-family homes.
  3. Home value. Use a home value estimator or ask your real estate agent for a good guess.
  4. Mortgage balance. Check your current mortgage statement to confirm any outstanding balance that needs to be paid off.
  5. Property use. Only primary residences are eligible for reverse mortgages.
  6. ZIP code. Adding your ZIP code will connect you with reverse mortgage lenders in your area.

*The LendingTree reverse mortgage calculator only displays an estimated lump-sum amount. For other options, contact an experienced reverse mortgage loan officer.

How borrowing options affect your reverse mortgage maximum loan amount

Lump sum. If you withdraw all your available funds at once, the limit is usually lower than other options. However, the lump-sum rate is fixed (other options are variable), which means your balance won’t grow as fast as the adjustable-rate options if interest rates are spiking. 

Monthly payouts. Homeowners often choose reverse mortgages to convert equity into additional monthly income. There are limits on first-year withdrawals with these options. You can choose from two types of monthly payouts: term and tenure. 

  1. Term payouts give you fixed monthly cash for a set number of years. 
  2. Tenure payouts provide monthly cash for as long as you have the loan. 

Line of credit. Homeowners who want some “rainy day” insurance for their financial future can choose the line of credit option. Interest charges only accrue on the money you use. Over time, the unused credit continues to grow. There are limits on the funds drawn in the first year. 

Combination of line of credit and monthly payouts. HECM guidelines allow you to combine term and tenure payout options with a line of credit. However, be sure to discuss how these options affect your max reverse mortgage amount with a reverse mortgage loan officer.

A note about HUD-required HECM counseling

The FHA requires counseling from a counselor certified by the U.S. Housing and Urban Development (HUD). This gives seniors a built-in safeguard for seniors to ensure they get a third-party opinion on any HECM loan options they are considering.