Reverse mortgages are a way for seniors over 62 to receive much needed income. Home owners over 62 can take out money from the equity in their home, without having to pay back the loan until they pass away or sell their home. The money from a reverse mortgage can be used for pretty much anything – traveling, medical bills, or home repairs.
The sum of money that you receive from a reverse mortgage is not taxable and can be in the form of a lump of cash, monthly payments, or a line of credit, which can be used much like a credit card. After the borrower dies or sells the home, the reverse mortgage loan will have to be paid back with interest, usually by the borrower’s heirs.
How Much Can You Borrow?
There are several factors that are taken into consideration by the lender when deciding how much you can borrow. The most important is the value of your home, followed by age, current mortgage rates, and lending limits, if applicable. The maximum limit for a reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM), is $625,500. Private lending companies also offer reverse mortgages, which may have a higher maximum limit, but their loans will not be insured by the Federal Housing Administration (FHA). The general idea is that the older you are, the more your property is worth, and the lower the current interest rate is, the more you will be allowed to borrow.
How much you can borrow also depends on how you wish to receive the payouts. You can choose to receive all the money at once, in a single large payment, which would be useful if you need money for medical bills or repairs. Alternatively, you can choose to receive the money as monthly payments, which is helpful if you only need money for month to month expenses, such as bills. Also, you can choose to use the money from the reverse mortgage as a credit line, mostly useful when you have unexpected expenses.
If you choose to receive the whole amount at once, the interest on the loan will increase quicker than the other choices. If you choose to receive monthly payments, you will keep receiving them until you die, even if the total amount will be higher than the value of your home. When choosing to use the money as a line of credit, the unused funds will increase annually, meaning that you will gain access to larger funds as the years go by.
A reverse mortgage is a blessing for seniors who need money and don’t have a good source of income. The maximum limits are high enough to accommodate most senior borrowers, and they won’t have any trouble borrowing the money because there are no credit requirements and monthly mortgage payments due. The amount that you will be able to borrow is related to your age, home value, interest rate, and payout type, but you can quickly get an estimate by using an online reverse mortgage calculator or by simply consulting with your reverse mortgage lender.