What Percentage of Home Value for a Reverse Mortgage?

A reverse mortgage serves as a financial tool allowing homeowners to convert a portion of their home equity into usable cash. This arrangement can provide financial flexibility without requiring homeowners to sell their property or make monthly mortgage payments. Understanding how the accessible home equity is determined is important for those considering this option.

The Principal Limit: How Much You Can Borrow

There is no fixed percentage of a home’s value that a homeowner can automatically borrow with a reverse mortgage. Instead, the maximum amount a borrower can receive is known as the “Principal Limit.” This limit represents the total available loan amount, which is not simply a straightforward percentage of the home’s value. The Principal Limit is calculated based on several variables, rather than a predetermined ratio.

The calculation of the Principal Limit takes into account the borrower’s age, prevailing interest rates, and the appraised value of the home, up to a certain maximum. While the Principal Limit represents the gross amount potentially available, the actual funds disbursed to the borrower, termed the Net Principal Limit, account for various deductions. These deductions can include mandatory obligations, required home repairs, and potential Life Expectancy Set-Asides (LESAs).

Factors Influencing Your Principal Limit

Several specific factors directly influence the calculation of your Principal Limit, dictating the amount of home equity that can be accessed.

The age of the youngest borrower significantly impacts the amount of funds available. Generally, older borrowers qualify for a higher percentage of their home’s value because a reverse mortgage calculation considers the expected duration of the loan. A shorter life expectancy, statistically associated with older age, reduces the perceived risk for the lender, thereby allowing for a larger loan amount.

Current interest rates also directly influence the Principal Limit. For federally insured Home Equity Conversion Mortgages (HECMs), the Expected Average Mortgage Interest Rate (EAMIR) is a key component in this calculation. Lower interest rates typically result in a higher Principal Limit, meaning more money becomes available to the homeowner.

The home’s appraised value is another determinant. For HECM loans, it is considered up to a maximum claim amount set by the Federal Housing Administration (FHA). This means that while a higher home value can increase the Principal Limit, there is an upper threshold for the value that can be used in the calculation. If the home’s value exceeds this FHA limit, the maximum claim amount will be used instead.

Understanding Your Home’s Appraised Value

The appraised value of your home is a foundational element in determining your reverse mortgage Principal Limit. A professional appraisal is conducted to assess the property’s market value, which directly influences the potential loan amount. This appraisal process involves a thorough evaluation of the home’s condition, features like the number of bedrooms and bathrooms, its age, and its location. The appraiser also compares the property to similar homes that have recently sold in the area to establish its current market worth.

For HECM loans, a complete FHA appraisal is a mandatory requirement. The appraised value is then subject to the FHA’s maximum claim amount, which acts as a cap on the property value considered for the loan. For 2025, this HECM maximum claim amount is set at $1,209,750. Even if a home appraises for a value exceeding this FHA limit, the loan amount for an FHA-insured HECM will be based only on the maximum claim amount. This means that for properties with very high market values, the portion of the value above the FHA limit will not be factored into the HECM loan calculation.

Different Reverse Mortgage Options and Their Limits

The type of reverse mortgage chosen significantly impacts the maximum percentage of home value that can be accessed. Different products cater to varying homeowner needs and property values.

Home Equity Conversion Mortgages (HECMs)

Home Equity Conversion Mortgages (HECMs) are the most common type of reverse mortgage and are federally insured by the Federal Housing Administration (FHA). These loans are subject to the FHA’s maximum claim amount, which limits the property value considered for the loan. HECMs generally require the youngest borrower to be at least 62 years old to qualify. They also require borrowers to attend a mandatory counseling session to ensure a comprehensive understanding of the loan terms.

Proprietary Reverse Mortgages

Proprietary reverse mortgages, often referred to as jumbo reverse mortgages, are offered by private lenders and are not federally insured. These products are designed for homeowners with higher-value properties, allowing access to a larger portion of their home’s equity, often exceeding the FHA’s limits. Some proprietary loans may offer a lower minimum age requirement, with borrowers as young as 55 potentially qualifying, depending on the lender and state regulations. While they offer greater borrowing potential for expensive homes, they typically come with higher interest rates due to the absence of government backing.