While the minimum age for qualifying for a reverse mortgage is 62, the longer applicants can hold off from applying the more money they could get. Other factors, such as the amount of equity applicants have in their homes, come into play as well, but the age when a homeowner applies for a reverse mortgage loan is significant.
The Federal Housing Authority began offering reverse mortgages in 1961 as a way for seniors who wanted to grow older in their homes to access the property's equity. The minimum age was instituted, along with requirements that seniors must own their home outright or have a significant amount of equity and that the home must be the reverse mortgage loan applicant's primary residence.
Seniors are advised to think through the timing of their loan. The U.S. Department of Housing and Urban Development requires applicants to talk to a reverse mortgage counselor before they submit a reverse mortgage loan application. Seniors need to understand how a reverse mortgage loan can affect their personal finances and if they are at the optimal age to apply for one. Counseling services are provided free or for a low cost.
Advantages of Applying for a Reverse Mortgage at an Older Age
Increased home equity: The longer you make payments on your traditional mortgage, the more equity you will build up in your home. That means a larger sum of money will be available when you apply for a reverse mortgage.
Increased home value: Home prices typically increase over time, which could translate into higher principal limits for an older reverse mortgage loan applicant.
Older homeowner: An older borrower also typically means higher principal limit factors.
Time to watch the market: If you are in a financial situation that allows you to wait to take out a reverse mortgage loan, you will have the luxury of holding out for the best market conditions. Reverse mortgage interest rates are an integral factor in calculating the terms, and waiting could allow you to look at financial trends and determine the most financially beneficial time to apply for the loan.
So how much more money can you get if you wait to apply for a reverse mortgage loan? The Federal Housing Authority cap on reverse mortgage loans currently is $625,500, but the amounts that applicants can qualify for vary widely. Here are examples generated by a reverse mortgage calculator.
A few other factors will come into play when the amount of a reverse mortgage payout is determined. The age of the youngest title holder could be significant, as could the home's appraised market value and the applicant's choice of distribution.
While there are many benefits to waiting to apply for a reverse mortgage loan, they don't apply to everyone. All homeowners should consider their individual situations and income needs before deciding when to apply for a reverse mortgage loan.