A reverse mortgage can help retired or soon-to-be retired homeowners have a larger cash flow than their retirement income provides. Just how much of your home’s equity can you tap into though? We help you understand the factors below.
The General Guidelines
In general, you can expect to tap into between 50% and 55% of your home’s equity. There isn’t a blanket number, though, because it depends on a variety of factors. The older you are when you take out the loan and the longer the loan term, the more money you may receive. It also depends on the type of disbursement you choose – do you want one lump sum or are you going to have many disbursements?
Other factors that play a role include the amount of outstanding liens you have on the home, the value of the home at the time of the reverse mortgage, and the interest rates at the time of application.
You must be at least 62-years old in order to apply for a reverse mortgage. If you are married and you own the home jointly, both spouses must be at least 62 years old, however, the youngest spouse’s age will determine how much money you can borrow.
Typically, the older you are, the more money you are able to take out of your home’s equity. That’s because the older you are, the less life you likely have left. This means the bank will receive their money back sooner. This isn’t the only factor, but it does play a major role in your ability to tap into your home’s equity.
What’s Your Home Value?
Just like with any other mortgage on your home, the appraised value determines how much you can borrow. If you happen to apply for the reverse mortgage during a time when home values fall, you’ll be able to borrow less money. The lender will have a specific LTV that you qualify to receive and they can’t go over that. If you don’t feel like the amount is high enough, you may want to wait until home values in your area increase again.
What Liens do you Have?
In a perfect world, you won’t have any liens on your property when you apply for a reverse mortgage. If you do have any liens, the full amount of the lien comes off the amount you may receive in a reverse mortgage. For example, if you were eligible for $100,000 in a reverse mortgage, but you have a $20,000 home equity loan on the home, you’ll receive $80,000 because the other $20,000 will pay off the lien.
What are the Current Interest Rates?
The final factor that determines how much you can get in a reverse mortgage is the current interest rates. Just like any other mortgage, you will accrue interest. The difference with the reverse mortgage is that you don’t have to pay the interest until you sell the home or die. If you die before the reverse mortgage is paid off, those that inherit your home will be responsible for paying off the reverse mortgage. Because the interest charges can add up, the lower the interest rate at the time of your loan, the more money you’ll be able to receive.
As you can see, there are many factors that determine how much you can get in a reverse mortgage. As a general rule, you should have at least 50% equity, but the more that you have, the better your chances are of securing a reverse mortgage.