What is the reverse mortgage maximum loan amount? You may be surprised to learn that there is no maximum loan amount. The reverse mortgage is completely open-ended as long as you meet your program obligations.
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. If you’d to go more in-depth than just a few basics, check out our article here.
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 FHA-insured reverse mortgage that enables seniors to tap into home equity without a monthly 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; the most that will ever have to be repaid is the value of the home. FHA will cover the shortage if your home is not worth enough to pay off the entire loan balance.
The HECM is a mortgage, which means it has an interest rate like any other mortgage. Interest rates for HECMs are usually comparable to or slightly higher than traditional 30-year fixed rates. Payments aren’t required, so the unpaid interest simply accrues onto the loan balance over time.
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 and maintain the home. No repayment is required as long as at least one borrower or non-borrowing spouse is doing that. This means the HECM is completely open-ended. As long as you meet your program obligations, there is no requirement to repay the loan. This is true even if you use up your entire line of credit, run out of term payments, or run out of equity in your home.
My favorite payout option is the line of credit because it has a built-in guaranteed growth rate. There is no practical limit on the growth of your available credit, which means it could even exceed the value of your home at some point.
Tenure income is guaranteed for life, even if you use up the equity in your home. As long as program obligations are met, it’s open-ended and guaranteed regardless of loan balance or remaining equity.
This is why it’s so important that the HECM is a non-recourse loan. A HECM wouldn’t be workable if there was unlimited repayment risk. Nobody knows how long they’ll live, so there’s no way to predict the final loan balance.
No matter the loan balance, you, your estate, and your heirs are fully protected if you ever owe more than the value of your home. The most that will ever have to be repaid is the value of your home, even if it’s not worth enough to pay off the entire balance.
In short, there is no reverse mortgage maximum loan or loan amount. The HECM is completely open-ended as long as your program obligations are met.
The maximum initial loan amount
To be clear, there is no maximum reverse mortgage loan amount over time, but there is a maximum amount at the start of the loan. The HECM initially offers a portion of the value of your home. How much of a portion depends on the value of your home, your age, current interest rates, and the HECM program you select. The amount is different for everybody.
We won’t get into how to calculate proceeds here. That topic can be complex and we usually leave the heavy lifting to the computers anyway.
Though there’s a cap on the initial amount you can get, the HECM is designed to convert additional equity into cash over time. As I’ve already explained, that’s the part that has no limit.
If you’d like an estimate of how much you can initially qualify for, be sure to check out our reverse mortgage calculator.