How Much Can You Get on a Reverse Mortgage?

A reverse mortgage is a financial tool designed for homeowners aged 62 or older to convert a portion of their home equity into cash. This type of loan allows individuals to access funds without having to sell their home or make regular monthly mortgage payments. Instead, the loan is secured by the home itself and becomes due when the borrower moves out, sells the home, or passes away. The amount received depends on several factors related to the homeowner and property.

Key Factors Influencing the Loan Amount

Several variables directly influence the amount of money a homeowner can access through a reverse mortgage. The age of the youngest borrower is a significant factor. The older the youngest borrower, the more equity can be converted into available funds. Lenders consider the expected loan duration; a shorter anticipated term means less interest accrues, allowing for a larger upfront disbursement.

Current interest rates also determine the loan amount. When interest rates are lower, a higher initial loan amount is possible. Lower rates reduce the lender’s future risk related to loan balance growth. Conversely, higher rates result in a smaller available loan amount due to greater projected interest accumulation.

The home’s appraised value is another primary determinant. For federally insured Home Equity Conversion Mortgages (HECMs), the loan amount is based on the home’s current market value, determined by an FHA-approved appraisal. There is often a maximum value cap, such as the FHA national lending limit. Even if a home is appraised for a higher amount, the loan calculation will not exceed this maximum. For example, if a home is valued at $1.5 million but the FHA limit is $1.2 million, the loan amount will be calculated based on the $1.2 million limit.

Understanding the Principal Limit

The principal limit represents the total amount of funds available to the borrower over the life of a reverse mortgage. It is a calculated figure derived from the homeowner’s age, prevailing interest rates, and the home’s appraised value (up to the maximum lending limit). These factors are incorporated into a calculation using a Principal Limit Factor (PLF), a multiplier lenders use to determine the maximum loan amount.

The principal limit establishes the absolute ceiling for the loan. While this is the maximum amount, initial disbursements for Home Equity Conversion Mortgages may be subject to limitations in the first 12 months, and a maximum claim amount applies.

This limit applies to the lesser of the appraised value or sales price. The principal limit directly impacts how much cash can be accessed, determining the pool of funds from which the borrower can draw.

Reverse Mortgage Types and How They Affect the Amount

The type of reverse mortgage chosen influences the maximum amount a borrower can receive. The most common type is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA). HECMs are subject to the FHA’s national lending limit, meaning the maximum amount available through a HECM cannot exceed this federally set cap, regardless of the home’s actual market value. For 2025, this limit is $1,209,750.

For homeowners with properties valued significantly above the FHA lending limit, proprietary reverse mortgages, often referred to as “jumbo” reverse mortgages, may be an option. These are private loans not insured by the FHA, and they are specifically designed for higher-value homes that exceed the HECM limit. Proprietary reverse mortgages can offer a larger loan amount than HECMs for eligible properties, providing flexibility for homeowners with substantial home equity. They are less common and may have different terms and conditions than HECMs.

A third, less common category is single-purpose reverse mortgages. These are offered by non-profit organizations or state and local government agencies. Unlike HECMs or proprietary loans, single-purpose reverse mortgages are restricted to specific needs, such as paying property taxes or funding necessary home repairs. They offer smaller loan amounts than other reverse mortgage types, as their purpose is narrowly defined and tied to particular expenses.

Costs and Fees That Reduce the Net Proceeds

While the principal limit determines the maximum loan amount, various costs and fees can reduce the net proceeds a borrower receives. One common charge is the origination fee, levied by the lender for processing the loan application. This fee can vary but is often capped for HECMs, with specific limits based on the home’s value, up to a maximum of $6,000.

For HECMs, the Mortgage Insurance Premium (MIP) is a cost. This includes an upfront MIP (a percentage of the maximum claim amount) and an annual MIP (calculated as a percentage of the outstanding loan balance). These premiums protect the lender if the loan balance exceeds the home’s value and ensure the borrower receives expected payments. The upfront MIP is 2% of the maximum claim amount for HECMs.

Borrowers also incur standard closing costs similar to a traditional mortgage. These include appraisal fees, title insurance, escrow fees, recording fees, and attorney fees. These costs are typically financed into the reverse mortgage itself rather than being paid out-of-pocket at closing. These fees are deducted from the principal limit, reducing the total cash available to the borrower.