How Much Can I Borrow with a Reverse Mortgage?
The amount of money you can borrow is dependent on the value of your home, the youngest borrower’s age, the current interest rate, and any applicable lending limits. For an HECM loan, the maximum limit was $625,500 in 2009. Proprietary reverse mortgages from private lenders may offer a higher loan amount than $625,500, but they are not federally insured by the FHA. In general, you’ll be able to borrow more the older you are, the more your home is worth, and the lower the interest rate.
Distribution of Funds
One of the benefits of a reverse mortgage is the range of choices for how to receive the reverse mortgage proceeds. You can decide how you would like to receive the money depending on your financial situation and needs. In every case, you must first pay off any existing mortgage on your home before you may opt to receive the remaining funds on one of the following forms:
- Lump sum payment
You can choose to receive the entire loan balance immediately at closing. Although you will have a large amount of ready cash, the interest accrued on the loan will increase faster than the other options. If you don't need the money immediately, consider a Line of Credit.
- Monthly income
A fixed monthly amount can be deposited into your account for a predetermined time or for the rest of your life. This option offers consumers a steady stream of income.
- A line of credit
When you establish a line of credit account, the funds are available to be used whenever you need the money. Unused funds do not accrue interest. Instead, the line of credit available to you will grow at the interest rate of the loan + 0.5%. This option offers seniors the most flexibility and provides a rainy day fund.
- A combination of lump sum payment, line of credit, and monthly payment
Your proceeds can be distributed in any combination of the three options. Please be sure to speak with your lender and explore your options thoroughly before choosing
Use of Funds
The money you receive from a reverse mortgage can be used for any purpose after any existing mortgage is repaid. Some of the more common uses of reverse mortgage proceeds include, but are not limited to, the following:
- Home repairs and home improvement
- Healthcare – in-home nursing care, medical bills, prescriptions
- Children’s or grandchildren’s education
- Monthly living expenses
- Credit card debt