How Much Can You Borrow with a Reverse Mortgage?

Many people are surprised to discover that they can’t borrow against their home’s entire value with a reverse mortgage. That’s because reverse mortgage balances don’t decrease with time; they increase as more money is paid to the homeowner and as interest charges are added to the balance. If you were allowed to borrow against the entire value of your home, the mortgage would be underwater almost immediately.

Mortgage Amount Depends on Age, Interest Rate and Home Value

For the Home Equity Conversion Mortgage, which has about 90 percent of the reverse mortgage market share, HUD uses a table to determine what’s called the Principal Limit Factor, or PLF. Its calculations are based on the reverse mortgage interest rate and your age. Here’s what the table looks like if your interest rate is 5%:

Principal Limit Factors at 5% Interest Rate

 

Age

Factor

62

0.619

65

0.637

70

0.663

75

0.693

80

0.718

85

0.747

90

0.776

To determine how much you’d be allowed to borrow, simply multiply your home’s value (or $625,500 if your home’s value exceeds that amount) by the Principal Limit Factor that applies to you. If, for example, your home is worth $350,000, and the youngest borrower is 70 years old, you’d multiply your $350,000 home value by .663 to get your maximum loan amount of $232,050.

The HECM Saver program costs significantly less than the standard HECM, and it allows you to borrow less. In this case, our 70-year-old borrower has a PLF of .548 and would be allowed to borrow up to $191,800.

Should the Youngest Homeowner Stay on the Home’s Title?

When one homeowner is significantly younger than the other, it can be tempting to drop him or her from the home’s title so that more money can be borrowed. However, there are many legal consequences when you do this, and surviving spouses have found themselves evicted from their homes when the elder spouse died. This is not a decision to make lightly.

 

What About Jumbo Reverse Mortgages?

Homeowners with more expensive homes can shop for proprietary or jumbo reverse mortgages, which may allow them to borrow more. Keep in mind, however, that the fees for these loans are not regulated by HUD. Shop carefully, and consult a HUD-approved reverse mortgage counselor before committing to any program.

 

Find out how much you qualify for.