Reverse Mortgage Mini-Series: Part IV

Guess who’s back, back again? (Any Eminem fans?) We’re back with the next piece in our Reverse Mortgage Mini-Series. Let’s do a quick recap:

• Part I: What reverse mortgages are and how equity can be accessed
• Part II: What goes into the calculations and detailed the payment options
• Part III: Details about new jumbo reverse mortgage options

If you’ve read all parts, hopefully you feel you have a better understanding of reverse mortgages. But, maybe you’re still wondering what the numbers could actually look like. So, we’re here today to share some numbers.

Please keep in mind these are examples, not actual numbers that might apply to you (every situation is different and depends on your circumstances).

In this example, the home value is $1,000,000 and there is no existing mortgage. The youngest borrower is 62 years old (remember, the youngest borrow must be at least 62 years old and the amount of reverse mortgage funding possible is directly related to the borrowers’ ages). This household would qualify for a Home Equity Conversion Mortgage (HECM) of about $408,000 (compared to the 2023 HECM limit of $1,089,300). This $408,000 could be accessed in a number of ways: as a lump sum (part available in year one, part available in year two and beyond); as a monthly payment; as a line of credit available if/when needed; or a combination of the three.

This household would also be able to use the reverse mortgage to pay off a primary mortgage if one was in place with a balance less than this $408,000 qualifying amount (minus any fees as 100% of the primary mortgage must be able to be paid off with the HECM proceeds in order to qualify).

In this example, everything above remains the same, but the youngest borrower is now 72. This household would now qualify for a HECM of about $463,000. The change here is solely based on the older age of the youngest borrower because the calculation uses that factor (and you qualify for more the older you are).

In this example, the home value is $2,000,000, the borrower is 84, and there is a mortgage on the home. This borrower would qualify for about $655,000 (remember, there is a maximum/limit on HECM loans, so the age continues to play a big role in the reverse mortgage amount). This borrower would have the first $200,000 available directed to pay off the primary mortgage then might qualify to take about $100,000 in cash out in year one (or have access to a $100,000 line of credit in year one) and would have access to the remaining $355,000 starting in year two and beyond.

What about a jumbo reverse mortgage for significant equity and home values that have appreciated over time? In the above example, this borrower could qualify for up to $1,000,000 or slightly more! With the jumbo loan, it is likely that most, if not all, of that $1,000,000 could be available immediately, too.

In all examples above, the initial loan balance will consist of the closing costs (mortgage insurance premiums, origination costs, etc.) and any cash taken out immediately. That loan balance will grow over time with the interest rate on the loan (plus any additional withdrawals made from the reverse mortgage and interest on that larger balance). That loan balance will not require any payment until the last borrower leaves the home (either when moving out or when he/she passes away).

As mentioned before, the above examples are just that – examples! Each situation is specific to you, your partner, your home, your existing mortgage, your ages, and your location. So, while we hope these examples are helpful in showing you what the numbers could look like, if you’re curious about your own situation, let’s talk more.