A reverse mortgage can be used as a powerful retirement tool to supplement income, offset costs, fund major projects, or simply beef up retirement savings.
But before applying for a reverse mortgage, you will want to get an idea of how much you will be able to receive.
The amount of money you can receive from a reverse mortgage is impacted by several factors and variables, which we detail below.
Ultimately, to get the most accurate idea of how much you can get from a reverse mortgage, we recommend talking to one of our reverse mortgage specialists, who will be able to answer all of your questions.
Reverse mortgages allow homeowners aged 62 and older to access their home equity without having to make monthly mortgage payments. With a reverse mortgage, you can receive funds as a lump sum, line of credit monthly payments or a combination. The loan only needs to be repaid when you pass away sell the home, or move out permanently.
But how much can you actually borrow with a reverse mortgage? The answer lies in understanding loan-to-value (LTV) ratios and loan limits, Keep reading for an in-depth look at reverse mortgage maximum LTVs and limits in 2024
What is Loan-to-Value Ratio?
Loan-to-value ratio compares the amount of your loan to the appraised value of your home With a forward mortgage, your LTV determines whether you have to pay private mortgage insurance But for reverse mortgages, LTV determines how much you can borrow.
LTV is calculated by dividing the loan amount by the home’s value. For example, if your home is worth $300,000 and you take out a $150,000 reverse mortgage, your LTV is 50% ($150,000 ÷ $300,000 = 0.50 or 50%).
Maximum LTVs on Reverse Mortgages
Reverse mortgage lenders set maximum LTVs, which dictate the maximum percentage of your home’s value you can borrow. Maximum LTVs commonly range from 50% to 75% for reverse mortgages. However, some lenders may allow LTVs over 75% in certain scenarios.
The higher your LTV, the more funds you’ll have access to through your reverse mortgage. But higher LTVs also mean paying more in interest over the life of the loan. It’s important to only borrow what you need to achieve your financial goals.
As a general guideline, here are the factors that determine your maximum reverse mortgage LTV:
-
Your age – Older borrowers can qualify for higher LTVs. Each lender has an LTV schedule based on the youngest borrower’s age at the time of closing.
-
Interest rate – Fixed-rate reverse mortgages allow higher LTVs than variable-rate loans.
-
Your home value – The more equity you have built up, the higher your LTV can be.
-
Loan term – Shorter loan terms mean lower maximum LTVs.
-
Loans limits – We’ll cover federal loan limits next. These caps may restrict LTVs for some borrowers.
-
Property type – Maximum LTVs are typically lower for manufactured homes versus single-family homes.
-
Loan program – Proprietary reverse mortgage programs may have different LTV limits than federally-insured loans.
Federal Reverse Mortgage Loan Limits
When getting a federally-insured Home Equity Conversion Mortgage (HECM), loan limits apply on top of maximum LTVs. HECMs have a nationwide loan limit that is adjusted annually.
For 2024, the standard HECM loan limit will be $1,149,825, up from $970,800 in 2023. This means even if your home value and maximum LTV qualify you for a higher loan amount, federal HECM loans are capped at this 2024 nationwide limit.
The loan limit applies to the original principal limit of your HECM, not the total loan amount. It restricts the maximum claim amount used to calculate your principal limit based on your age, interest rate, and other factors.
In certain high-cost areas, you may qualify for a higher HECM loan limit using the FHA mortgage limits for that area. The maximum HECM limit based on FHA limits will be $1,724,675 for 2024.
Calculating Your Maximum HECM Loan Amount
When applying for an FHA-insured HECM reverse mortgage, lenders use your maximum claim amount and principal limit factor to calculate the maximum loan amount. Here is an overview of how it works:
Step 1) Determine the maximum claim amount, which is the lower of:
- The FHA mortgage limit for your area
- The home’s maximum appraised value for HECM purposes
Step 2) Find the principal limit factor (PLF) based on:
- The age of the youngest borrower
- The expected interest rate
- Loan term
Step 3) Multiply the maximum claim amount by the PLF to get your principal limit.
Step 4) The principal limit is the maximum FHA-insured amount you can borrow.
As an example:
-
Home value: $300,000
-
Nationwide HECM loan limit for 2024: $1,149,825
-
Maximum claim amount = $300,000 (lower than national limit)
-
Youngest borrower age: 75
-
Expected interest rate: 5%
-
PLF based on age and rate: 0.55
-
$300,000 x 0.55 = $165,000 maximum principal limit
So for this scenario, the maximum FHA-insured loan amount is $165,000, even though the LTV could potentially go higher. The principal limit is restricted by the maximum claim calculation.
Evaluating Payoff Options
In addition to LTV ratios and loan limits, the way you opt to receive your reverse mortgage funds can impact your available loan amount. HECMs provide three main payment choices:
Lump sum: Receive the funds in one payment at closing. Provides the lowest loan amount.
Term payments: Equal monthly payments for a fixed timeframe.
Tenure payments: Equal monthly payments for life or until loan is repaid.
Line of credit: Acts like a credit card where you can draw on available funds as needed.
Combination: Mix of monthly payments plus line of credit.
The most cost-effective options are the line of credit or combination of term payments and credit line. This is because you only pay interest on the amounts you use, rather than the full loan amount upfront.
Talk to your lender about the best repayment method for your financial needs. They can help you determine the maximum loan amount for each option.
Shopping Around Is Essential
It’s important to talk to multiple lenders and compare offers when taking out a reverse mortgage. Understand all your choices for maximum LTV ratios and loan amounts. Each lender will have their own lending criteria, so you may qualify for a higher loan amount with one company over another.
Shopping around helps you find the optimal loan amount while staying within a comfortable LTV range for your financial situation. Be sure to compare interest rates, fees, loan terms, and repayment requirements too.
Key Takeaways on Reverse Mortgage Maximum LTV
-
Maximum LTV determines the highest percentage of your home’s value you can borrow with a reverse mortgage. Common LTV maximums range from 50% to 75%.
-
Older homeowners, higher home values, fixed rates, and shorter terms allow for higher maximum LTV ratios.
-
HECM reverse mortgages have loan limits that may restrict the amount you can borrow based on your home’s value.
-
For 2024, the standard HECM limit will be $1,149,825 but certain areas qualify for higher limits.
-
Talk to multiple lenders and compare options to find the best loan amount for your needs.
Reverse mortgages can be complex, but understanding factors like maximum LTVs and loan limits gives you a clearer picture of your available borrowing power. Be sure to evaluate both fixed and variable interest rates as well as different payment options too. An expert lender can help you optimize your reverse mortgage to achieve your financial goals.
Closing Costs and Other Fees
When a reverse mortgage loan closes, borrowers do need to pay some closing costs that will also affect the total amount that homeowners receive.
Alternatively, borrowers may also choose to pay for these costs out of pocket, which means that they will not impact the total loan amount.
A Reverse Mortgage Explained
The home equity conversion mortgage (HECM), commonly referred to as a HECM reverse mortgage or HECM loan, is the most prevalent type of reverse mortgage. Other options include single-use reverse mortgages and proprietary reverse mortgages, such as the jumbo reverse mortgage, tailored to those with specific needs.
Reserved exclusively for homeowners aged 62 or older, reverse mortgages hinge on the accumulation of substantial equity in the homeowner’s primary residence. It’s important to note that investment properties and vacation homes don’t meet the eligibility criteria for a reverse mortgage.
A reverse mortgage can serve as a financial lifeline, enabling senior homeowners to tap into the equity of their homes without shouldering monthly payments, unlike a home equity loan or a home equity line of credit (HELOC).
Upon obtaining a reverse mortgage, the first step will be to settle any outstanding traditional mortgage. Once that’s taken care of, homeowners have a range of choices regarding the remaining reverse mortgage proceeds. They can opt for a lump sum payment, monthly installments, a line of credit, or a combination of those options.
Although a reverse mortgage can offer financial flexibility to older homeowners, it’s crucial to remember that certain responsibilities still rest on the borrower’s shoulders. These include paying property taxes, maintaining homeowners insurance coverage, and ensuring the home’s overall upkeep.
Notably, the security of a reverse mortgage stems from its backing by the federal government. The U.S. Department of Housing and Urban Development (HUD) effectively regulates reverse mortgages, which is further insured by the Federal Housing Administration (FHA). Such measures aim to safeguard both borrowers and lenders.
2023 Reverse Mortgage Maximum Loan Amount | HECM Max Claim Amount | Reverse Mortgage Limits
FAQ
What is the 60% rule in reverse mortgage?
What is the maximum loan to value ratio for a mortgage?
What is the maximum jumbo reverse mortgage?
Are reverse mortgages capped?
What is a principal limit on a reverse mortgage?
Principal limit: This amount is the total you can borrow with a reverse mortgage, based on your maximum claim amount and several other factors. Your loan-to-value ratio (LTV) is the percentage of your home’s value that you can borrow.
What is a reverse mortgage maximum claim?
The reverse mortgage maximum claim is the cap on the value that can be used to calculate your principal limit. As of January 2024, the maximum Home Equity Conversion Mortgage (HECM) claim is $1,149,825. If you have a home value of $1,200,000, the principal limit will be determined using a value of $1,149,825.
How much can I Borrow with a reverse mortgage?
The amount you can borrow with a reverse mortgage depends on several factors, starting with the value of your home and the amount of equity you’ve built up. Your interest rate and other fees can decrease the amount you can borrow since they are usually wrapped up in the loan.
What is the LTV ratio for a reverse mortgage?
For a reverse mortgage, the LTV ratio depends on the exact age of the borrower, the value of the home and current interest rates. The FHA set the maximum property value for HECM loans at $726,525 for 2019. This is up from $679,650 reverse mortgage loan limits in 2018.