If you’re 62 or older, you may be eligible for a reverse mortgage. The most popular reverse mortgage program is the Home Equity Conversion Mortgage (HECM), insured by HUD – Housing and Urban Development. This federally insured loan can help you stay in your house for as long as you maintain your primary residence and keep up with property taxes and insurance.
Because the length of the loan depends directly on how long you live in the home, the amount you can borrow also depends on that time frame, including the age at which you get the reverse mortgage. Reverse mortgage proceeds can be accessed in a few different ways—as a line of credit, as monthly term or tenure payments, as a lump sum, or some combination of those options—and can be used in whatever way you’d like; for groceries, medication, or even utility bills.
New Proprietary Programs Work at Age 55
Borrowers who are not yet 62 but are 55 and over can also choose to seek a reverse mortgage from one of the “Jumbo” or “Proprietary Programs” available. The private programs are not insured by HUD and therefore there is no mortgage insurance required. The requirements and property eligibility criteria can be different but are very similar and borrowers who feel they do not want to wait for their 62nd birthday can always investigate one of the private programs to determine if it will meet their needs.
How Much Can I Receive from a Reverse Mortgage?
The amount of money you can receive from a reverse mortgage depends on a few factors:
- your age
- home value
- current interest rates and fees.
Your age plays a large role, because the older you are the more money you will qualify when you take out the reverse mortgage. The amount of money is based on principal limit factors, which provide you with more money as you get older. For example, if you’re a homeowner who owns your home, check out the examples below.
2023's Reverse Mortgage Principal Limit Factors
|Age of Borrower||Principal Limit Factor||Current Lending Limit|
PLF tables source: https://www.hud.gov/sites/documents/august2017plftables.xls
Which Program Should I Choose?
There are a couple of different HECM programs to choose from, including fixed rate and adjustable; lump sum distributions and monthly payments or lines of credits from which the borrower can draw as needed/desired. What is right or best is what is right or best for the borrowers’ individual circumstances. The fixed rate loan seems attractive to many borrowers but there are several downfalls borrowers must consider.
Namely, fixed rates require a full draw of all sums available. If you do not need all the money to pay off existing liens, HUD requirements on their program only allow a portion of the line to be accessed in the first 12 months and on a fixed rate loan with no subsequent draws available, any amount not available in the initial draw is lost to the borrower.
Also, since fixed rates are often higher than the adjustable rates and since interest rates are one of the determining factors as to how much money a borrower will receive, adjustable rate borrowers most often receive higher benefits in today’s interest rate environment.
Finally, the adjustable program gives borrowers more options as to how they will receive their funds (remember, with the fixed rate the only option is a one-time full draw of all funds available). Borrowers who choose an adjustable rate loan have several options of how to receive their loan proceeds, including a line of credit, monthly payments, or even a lump sum.
The funds still in the line of credit grow annually at the same rate as the interest accrual rate plus the MIP accrual rate on the unused portion. This is not interest you are earning but rather greater borrowing power later as the available line is increased by the growth amount.
You only owe what you borrow and you only accrue interest on the outstanding balance so just having the additional money available costs you nothing and does not need to be repaid later unless you actually draw and used those funds.
What is the minimum age for a HECM Reverse Mortgage?
What is the minimum age for a Jumbo Reverse Mortgage?
Can my spouse under the age of 62 be protected?
Is there any age limitation to getting a reverse mortgage?
Can you outlive a reverse mortgage?
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