What Is The Current Reverse Mortgage Maximum Loan Amount?

When people ask about a reverse mortgage maximum loan amount, they’re usually referring to one of three things: the maximum you can get at application, the maximum you can borrow over time, and what happens if the loan balance reaches the lending limit. We’ll address all three of these questions in this article.

A reverse mortgage is a great financial solution, but it’s not always perfect for every homeowner. We’ll cover what you need to know about the reverse mortgage maximum loan amount so you can make an informed decision about whether it’s right for you.

But before we do that, let’s first cover a few basics about what a reverse mortgage is and how it works. There is a lot of misinformation out there about reverse mortgages. 

First, A Few Basics

The most common reverse mortgage in the United States today is the HECM, or home equity conversion mortgage. The FHA-insured and regulated HECM enables seniors to tap into home equity without a monthly payment or giving up ownership of the home.

No mortgage payments are required as long as at least one borrower (or non-borrowing spouse) lives in the home, maintains it, and pays the property taxes, homeowner’s insurance, and HOA dues.

You always remain the owner of your home and you’re free to leave it to your heirs. Your heirs will inherit any remaining equity in the home.

The HECM is a non-recourse loan, which means the most that will have to be repaid is the value of the home. FHA covers the shortage if your home isn’t worth enough to pay off the entire loan balance.

The HECM is a mortgage, so it has an interest rate like any other mortgage. HECM rates are usually comparable to traditional 30-year fixed rates. Monthly mortgage payments aren’t required, so any unpaid interest simply accrues onto the loan balance over time.

The HECM is versatile and customizable; you can take the proceeds as a lump sum, line of credit, monthly term/tenure income, or some combination of all of these options.

The Reverse Mortgage Explained By An Experienced Industry Veteran

Share

Watch on

How Lenders Calculate Proceeds

The total pot of cash that you receive from a reverse mortgage is called the principal limit. Every principal limit is different because it’s based on your unique qualifications, including age, home value, current interest rates, and how your reverse mortgage is structured.

To calculate the principal limit, your lender first establishes the maximum claim amount. The maximum claim amount is equal to the lesser of your home’s value or the lending limit.

In other words, if your home is worth more than the lending limit, the maximum claim amount equals the lending limit. If your home is worth less than the lending limit, the maximum claim amount equals your home’s value.

The principal limit is calculated by multiplying the maximum claim amount by a principal limit factor selected from tables published by FHA. The principal limit factor is similar to a loan-to-value percentage. The lender selects the appropriate principal limit factor based on the age of the youngest borrower (or non-borrowing spouse) and the current expected interest rate.

To see how this works, let’s check out an example. Let’s assume we’re working with a 71-year old borrower, an expected interest rate of 4.375%, and a home value of $300,000. For this scenario, the appropriate principal limit factor is 0.50. The principal limit would be calculated as follows:

$300,000 (maximum claim amount) * 0.50 (principal limit factor) = $150,000 (principal limit)

As you can see, the principal limit works out to be $150,000 for this borrower. This is the gross amount of money available to pay off existing mortgages, cover closing costs, pay off debt, allocate to line of credit, etc.

What happens if we increase the age to 76? What would the principal limit be, assuming the same home value and expected interest rate? For this scenario, the appropriate principal limit factor is 0.532. The principal limit would be calculated as follows:

$300,000 (maximum claim amount) * 0.532 (principal limit factor) = $159,600 (principal limit)

As you can see, the principal limit works out to be $159,600 for this borrower, which is $9,600 more than for the 71-year old borrower.

For our last example, let’s keep the age at 76, assume the same home value of $300,000, but increase the expected interest rate to 4.75%. Here’s what the calculation would look like:

$300,000 (maximum claim amount) * 0.511 (principal limit factor) = $153,300 (principal limit)

As you can see, the higher expected interest rate reduced the principal limit by $6,300 versus the previous example.

The point here is not to get into the weeds about how to calculate reverse mortgage proceeds. My goal is to show you that there’s no set maximum reverse mortgage loan amount that applies to everybody. The principal limit is the maximum amount available at closing for you.

The Reverse Mortgage Maximum Loan Amount At Closing

As we’ve covered, the maximum reverse mortgage loan amount available at closing is the principal limit, which varies based on age, home value, current rates, and how the reverse mortgage is structured. There’s no set amount that applies to everybody.

You may be curious to know the max LTV on a reverse mortgage at closing. In other words, what is the most any reverse mortgage borrower can get?

If the expected interest rate is less than 4.5% and you’re in at least your early to mid 90s, you may be able to get a principal limit of 75% of the value of your home. That’s the absolute max LTV on reverse mortgages.

Of course, most borrowers are much younger than their 90s and expected interest rates are not always below 4.5%. Depending on interest rate conditions, most HECM borrowers tend to get between 40% to 55% of the value of their home.

If you’d like to estimate how much you can get, be sure to check out our reverse mortgage lump sum calculator.

Is there a maximum loan amount In the Future?

Again, no repayment is required as long as at least one borrower (or non-borrowing spouse) lives in and maintains the home and pays the required property charges. This is true even if you use up your line of credit, run out of reverse mortgage monthly payments, or run out of equity in your home.

A reverse mortgage is 100% open-ended, has no time limit, and has no maximum loan amount in the future. There is no max LTV on reverse mortgages over time.

Your loan will not be called due and you won’t have to start making payments if your loan balance reaches a certain amount.

Many seniors are nervous about the lending limit because they think it caps how much they can borrow in the future. It’s a valid concern, but it’s not something you need to worry about.

The lending limit only applies when calculating proceeds. As we covered earlier, the maximum claim amount equals the appraised value of your home or the lending limit, whichever is less.

The lending limit is basically just a cap on your home’s value for purposes of calculating proceeds. It is not a limit on how much you can borrow over time. Your loan will not be called due if your loan balance reaches the lending limit in the future.

Again, the reverse mortgage is an open ended loan. There is no maximum reverse mortgage loan amount over time.

Frequently Asked Questions