How Much Money Can You Get From a Reverse Mortgage?

A reverse mortgage is a loan that lets you tap your home’s equity without moving or selling your house. Not all older homeowners are eligible for reverse mortgages. You have to meet financial and home ownership requirements and, in most cases, be at least 62 years old. You must also keep up with ongoing household expenses, including taxes and insurance. 

Things like your age, finances, and home value can all impact how much money you can get from a reverse mortgage. Continue reading to learn the specific factors that affect how much money you get from a reverse mortgage—plus the different ways you can opt to receive your loan funds. 

How much money do you get from a reverse mortgage?

Generally, you can get 40% to 60% of your home’s appraised value as a reverse mortgage. So if your home is worth $300,000, you could get $120,000 to $180,000. 

But the exact amount you’ll qualify for depends on your age, loan interest rate, home value, and more. Below, we’ll look at how each factor affects how much you can get from a reverse mortgage. 

Age

You must be at least 62 years old to qualify for the most common type of reverse mortgage. Beyond that, the older you are, the more money you typically get. 

This is because lenders are often more hesitant to lend a larger chunk of change to younger borrowers who may not pay it back for several decades. 

Tip

If there’s a co-borrower on the loan, the amount of money you receive will be based on the age of the youngest borrower.

Interest rate

Interest rates play a big role in how much money you can get from a reverse mortgage. 

When rates are low, the loan balance grows more slowly over time. This means the lender can offer you a larger initial loan amount while still ensuring they won’t lend more than your home is worth.

When rates are high, your loan balance will grow more quickly. The lender will offer a smaller initial loan amount to avoid lending more than your home’s value.

Think of it like this: The lender wants to ensure the loan balance doesn’t exceed your home’s value by the time the loan is due (usually when you move out or pass away). They can better manage this risk by adjusting the initial loan amount based on interest rates.

Choosing a fixed-rate or a variable-rate reverse mortgage will also impact the amount you’re approved for. 

• Fixed-rate reverse mortgages typically offer lower loan amounts than variable-rate options because the lender assumes more risk by guaranteeing a fixed rate over the loan’s lifetime.
• Variable-rate reverse mortgages usually have higher loan limits because the lender can adjust the interest rate based on market conditions, potentially offsetting some risks.

Home value

When you get a reverse mortgage, your lender will order an appraisal on your house. This helps determine your home’s current value and how much you can borrow. Generally, the higher your home’s value, the more money you may be eligible to receive. 

Reverse mortgage lenders typically use a loan-to-value ratio to determine how much you can borrow. The LTV ratio is calculated by dividing the loan amount by your home’s appraised value.

Lenders generally allow a maximum LTV ratio of around 40% to 60%, meaning you can borrow up to that percentage of your home’s value. Remember that other factors like your age and interest rates will also impact your LTV. 

Current mortgage balance

If you still have a mortgage balance, it also impacts the amount you can receive from a reverse mortgage. Any existing mortgage balance must be paid off using the proceeds from your reverse mortgage first. Then, you can keep whatever is left over. 

So, if you have a large mortgage balance left to pay off, it could eat up the amount of money you can access through a reverse mortgage.

Loan type

There are three types of reverse mortgages, and the type you choose can affect how much money you can get. 

• HECMs currently have a maximum loan limit of $1,149,825. 
• Proprietary reverse mortgages often have higher loan limits up to $4 million.
• Single-purpose reverse mortgages are for specific things like paying for home repairs or property taxes. The amount normally lines up with the exact amount you need. 

Payment type

There are three main payment types for receiving your reverse mortgage proceeds: a lump sum payment, monthly payments, or a line of credit. 

If you choose a lump sum payment, you probably won’t be able to borrow as much. You’ll have to pay interest and fees on the entire loan amount, regardless of how long you have the loan. These costs will eat into your loan proceeds.

However, monthly payments and lines of credit let you borrow more over the life of the loan. And you’ll only pay fees and costs on the money you borrow, regardless of your total limit.

Fees and closing costs

As with any loan, reverse mortgages often have fees and closing costs. Unless you pay for these costs out of pocket, they’ll eat into your loan earnings and reduce the total amount you can borrow.

Example

• Your home is appraised at $500,000, and you have an existing mortgage balance of $100,000.
• The lender allows a maximum LTV ratio of 60% based on your age.
• This makes your total reverse mortgage amount $300,000 (60% of $500,000). 
• But, you first must pay off the $100,000 existing mortgage balance, leaving you with $200,000 in available funds from the reverse mortgage. 
• Financing $10,000 in closing costs reduces available funds to $190,000.  

Payment options to get money from a reverse mortgage

As mentioned above, there are three types of reverse mortgage payments—a lump sum payment, monthly payments, or line of credit. 

Option	Rate	How it works
Lump sum payment	Fixed	Borrower receives all loan funds upfront
Monthly payment	Adjustable	Receive loan proceeds in regular installments
Line of credit	Adjustable	Draw from credit line as needed

Lump sum payment

With a lump sum payment, you get your reverse mortgage proceeds in a single, upfront payment. This option may come with a lower borrowing limit, so it may not be the best if you’re looking to maximize your loan amount. 

A lump sum payment may also come with a higher borrowing cost because, unlike a line of credit or monthly payment, you’re guaranteed to pay interest on the entire amount. 

A lump sum payment can also be riskier for younger borrowers. Because you borrow the entirety of your loan amount upfront, there’s a risk you’ll outlive your loan proceeds. 

Monthly payment

Monthly payments work like a paycheck; you receive them in regular installments. They tend to cost less than a lump sum payment because you only pay interest and fees on the amount you borrow. 

There are two options for monthly payments: term or tenure. Term payments are fixed monthly payments for a set number of years, while tenure payments last throughout your lifetime (up to the borrowing limit).

You can also combine a monthly payment with a line of credit for more ways to use your loan proceeds.

Line of credit 

A line of credit lets you access your loan funds as needed, similar to a credit card or a home equity line of credit (HELOC). 

One unique feature of a reverse mortgage line of credit is the credit line growth feature. This means that the unused portion of your line of credit grows over time, allowing you to borrow more money in the future.

Like a monthly payment, a line of credit is cheaper than a lump sum payment because you only pay the borrowing costs for the money you use. 

Tip

Your payment options will vary by lender and type of reverse mortgage. HECMs tend to have more payment options. Proprietary and single-purpose reverse mortgages may have more limited options.

When choosing a reverse mortgage, start by figuring out exactly how much cash flow you need and go with the most conservative option. Ideally, a reverse mortgage helps you in your senior years without completely eliminating any final equity available to transfer to heirs.

Catherine Valega

CFP®

Common concerns with a reverse mortgage

Though reverse mortgages can be an excellent solution for specific borrowers, they aren’t perfect. Don’t get a reverse mortgage without considering these challenges:  

• Repayment stress: A reverse mortgage can complicate matters for heirs or anyone living in the home with you. They’ll be responsible for paying the balance or selling the home when you pass away. 
• Financial obligations: You must continue to meet certain obligations throughout the life of the loan like taxes, insurance, and repairs. Otherwise, you risk foreclosure.
• Tax implications: Unlike with a traditional mortgage, you generally can’t deduct the interest on your reverse mortgage until you or your heir repay the loan.

These concerns—along with the time and financial costs involved with getting a loan—can make it hard to decide whether or not to get a reverse mortgage. Consult a financial professional to weigh the pros and cons when in doubt.  

Ask the expert

Catherine Valega

CFP®

A reverse mortgage is often when we are presented with last-option scenarios. I would typically advise exploring other options first— reducing cash flow needs, possibly selling and buying a smaller home, or selling and moving in with children. Reverse mortgages can be complex to understand fully—I would advise seniors to work with financial professionals when evaluating their options.

Alternatives to a reverse mortgage

Though best in some scenarios, a reverse mortgage may not be the right choice for you for many reasons. If that’s the case, consider these alternatives: 

Home equity loan

A home equity loan is another way to access the equity you’ve built in your home, but it comes with a monthly payment. You don’t have to wait until age 62 to get this type of loan; you generally only need about 20% equity in your home to qualify.

Home equity line of credit (HELOC)

A HELOC is similar to a home equity loan, but it’s a line of credit you can draw from repeatedly for years. Following the draw period, you must make monthly payments to repay what you borrowed. 

Cash-out refinance

A cash-out refinance involves replacing your current mortgage with a bigger one. Since your new mortgage covers more than you owe on your house, you get to pocket (and spend) the difference. Unlike a reverse mortgage, you will have monthly payments. 

Sale lease-back

A sale lease-back involves selling your home and renting it out. While you no longer own your home, you don’t have to worry about paying taxes and home insurance. And unlike a reverse mortgage, there will be no loan to repay when you move out or pass away. 

Sell the home

If you can’t get as much money as you want from a reverse mortgage, you can always sell your home and downsize. The obvious challenge is finding a new place to live, which can be financially and emotionally draining. But you’ll be able to access all your home’s equity and, after securing housing, use the extra cash however you want.