How Much Money Can You Get From a Reverse Mortgage?

A reverse mortgage allows homeowners, typically aged 62 or older, to convert a portion of their home equity into cash without requiring monthly mortgage payments. This article explains the key factors determining the amount of money a homeowner can receive.

Core Factors Determining Your Loan Amount

Three core factors primarily influence the amount of money available through a reverse mortgage: the age of the youngest borrower, current interest rates, and the home’s appraised value. These elements establish the initial principal limit, representing the maximum available funds.

The age of the youngest borrower significantly impacts the loan amount. Older borrowers generally receive more because lenders consider their shorter life expectancy. A shorter expected loan duration means less interest accrues, reducing lender risk. Actuarial tables estimate life expectancy.

Current interest rates affect the accessible amount. Lower rates generally allow for a higher loan, while higher rates reduce available funds. This is due to the Expected Average Mortgage Rate (EAMR) calculation, which influences the principal limit. The specific rate used affects the equity converted.

The home’s appraised value forms the basis for the reverse mortgage calculation. A professional appraisal determines the market value, used to calculate the potential loan. A higher appraised value can lead to more accessible funds, though the amount is subject to a specific lending limit set by the Federal Housing Administration (FHA) for Home Equity Conversion Mortgages (HECMs).

Understanding the Principal Limit

The “Principal Limit” is the maximum money available through a reverse mortgage. This limit is the total sum accessible over the loan’s life, not the upfront amount. It combines borrower age, interest rates, and appraised home value. The calculation considers the home’s value or the FHA’s maximum claim amount, whichever is less.

The Expected Average Mortgage Rate (EAMR) is a key component for HECM Principal Limits. This rate combines an expected interest rate with the mortgage insurance premium. It projects the loan’s future balance and calculates the initial loan amount. A lower EAMR typically results in a higher Principal Limit, allowing access to more funds.

The FHA sets an annual maximum claim amount for HECM loans, acting as a ceiling for the home’s value in the Principal Limit calculation. For 2025, this is $1,209,750. Even if a home is appraised higher, the loan calculation only considers the FHA’s maximum claim limit.

For homes valued above the FHA’s maximum claim amount, proprietary or “jumbo” reverse mortgages are available. These products, offered by private lenders, are not federally insured. They offer higher principal limits than HECM loans, allowing owners of high-value properties to access more equity.

Costs and Fees That Reduce Your Net Funds

While the Principal Limit defines maximum available funds, mandatory costs and fees are deducted, reducing the actual cash available. These costs are typically financed into the loan, reducing the cash disbursed rather than requiring upfront payment.

Mortgage Insurance Premium (MIP) is a cost associated with HECM loans, protecting lenders against losses. An upfront MIP is 2% of the lesser of the home’s appraised value or the FHA’s maximum lending limit. An annual MIP of 0.5% of the outstanding loan balance also accrues, reducing future available equity.

Origination fees cover administrative costs. These FHA-regulated fees are capped at $6,000. They typically range from 2% of the first $200,000 of value plus 1% over $200,000, with a $2,500 cap for homes under $125,000. These fees are financed into the loan, reducing net funds at closing.

Other closing costs further reduce net available funds. These include appraisal, title insurance, recording, and credit report fees. Costs generally range from 2% to 5% of the loan amount. All charges are subtracted from the Principal Limit before funds are disbursed.

Funds may be set aside from loan proceeds for property taxes and homeowner’s insurance if a financial assessment indicates a need. This “Life Expectancy Set Aside” (LESA) covers future property charges. While limiting immediate access, it helps prevent default on property-related expenses.

How Disbursement Options Affect Your Available Money

Reverse mortgage funds are disbursed in various ways, influencing how much money is received at different times. After the Principal Limit is established and costs are deducted, the remaining net available funds can be accessed through several methods. Each option impacts the timing and flow of money to the borrower.

A lump sum payment provides all available funds upfront at closing. For HECM loans, a first-year limitation generally caps withdrawals at 60% of total proceeds. An exception allows additional access if funds are needed to pay off existing mandatory obligations, such as a prior mortgage or federal debt.

Tenure payments offer a steady income stream, providing equal monthly payments as long as at least one borrower lives in the home as their principal residence. Each payment is calculated based on the Principal Limit and the number of borrowers. Payments continue until the loan becomes due, providing financial predictability.

Term payments provide equal monthly payments for a fixed period chosen by the borrower, such as 5, 10, or 15 years. This option suits borrowers needing predictable income for a specific duration. Payments cease once the term ends, but the loan remains outstanding until repaid.

A line of credit provides flexible access, allowing borrowers to draw funds up to their available limit at any time. The unused portion grows over time, increasing the accessible amount. This growth rate is typically tied to the loan’s interest rate plus the annual mortgage insurance premium. Borrowers can combine options, such as taking an initial lump sum and leaving remaining funds in a line of credit.