April 11, 2019 by HECM Pro
If this sounds strange, hang with me and I will explain. But first, let me cover a few basics about what a reverse mortgage is and how it works. There is a lot of misinformation out there about the program.
How does a reverse mortgage work?
The most common reverse mortgage in the United States today is the HECM, or home equity conversion mortgage. The HECM is the official federally insured reverse mortgage program that enables seniors to tap into their home equity without a monthly mortgage payment or giving up ownership of the home.
You always remain the owner of the 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. That means the most that will ever have to be repaid is the value of the home. If the home is not worth enough to pay off the entire loan balance, FHA will cover the shortage.
That HECM is a mortgage, which means it comes with an interest rate just like any other mortgage. Interest rates for the HECM are usually pretty comparable to traditional 30-year fixed rates.
If you choose not to make a mortgage payment, which is the whole purpose of the program, then the interest simply accrues onto the loan balance over time.
This means that your loan balance increases over time. Again, the HECM is designed to convert home equity into cash.
Is there a reverse mortgage maximum loan amount?
As already mentioned, your obligation under the HECM is to simply pay the property charges and live in the home. As long as at least one borrower or non-borrowing spouse is doing that, no repayment is required.
The HECM is completely open-ended. As long as you meet your program obligations, neither the lender or FHA will demand that you start repaying the loan simply because the balance has reached a certain dollar amount. You can still collect term or tenure payments and enjoy line of credit growth regardless of the balance or how long you’ve had the loan.
Interest will still accrue onto the loan balance (which prevents you from having to make a mortgage payment) regardless of how large the loan balance grows.
This is true even if the loan balance grows larger than the value of the home. Remember, the HECM reverse mortgage is a non-recourse loan. That means the most that will ever have to be repaid is the value of the home, even if it’s not worth enough to pay off the entire balance.
You and your heirs are fully protected if the loan balance exceeds the home value.
In short, there is no reverse mortgage maximum loan or loan amount. The HECM is completely open-ended as long as the program obligations are met.
One final point
Having said all this, let me make one final point for the sake of clarity.
Again, there is no maximum reverse mortgage loan amount. The HECM is totally open ended as long as you meet your program obligations.
However, there is a maximum you can qualify for at the outset of the loan. This amount is different for everybody because it depends on the value of your home, your age, current interest rates, and the HECM program you select.
There is also a maximum home value for qualifying purposes. Once your home value exceeds the FHA lending limit, you don’t qualify for any additional money.
If you would like to get an estimate of how much you can qualify for, be sure to check out our reverse mortgage calculator.