Calculator Reverse Mortgage

Estimate your potential reverse mortgage payout and understand key factors.

Reverse Mortgage Payout Estimator

What is a Reverse Mortgage?

A reverse mortgage is a special type of home equity loan for homeowners aged 62 or older. Unlike a traditional home equity loan or HELOC, where you make monthly payments to a lender, a reverse mortgage allows you to receive funds from your home equity without having to sell your home. You don't have to repay the loan for as long as you live in the home as your primary residence, or until you sell the home or fail to meet loan obligations.

The loan is repaid when the last borrower permanently leaves the home. The amount repaid is typically the loan balance, including accrued interest and mortgage insurance premiums. If the sale proceeds are less than the loan balance, the FHA insurance (for HECM loans) covers the difference, meaning you or your heirs won't owe more than the home is worth. If the sale proceeds exceed the loan balance, the remaining equity belongs to you or your heirs.

Who Should Consider a Reverse Mortgage?

• Homeowners aged 62 or older.
• Those who own their home outright or have significant equity.
• Individuals seeking to supplement retirement income without selling their home.
• People who want to cover healthcare costs, home modifications, or other expenses.
• Those who plan to stay in their home long-term.

Common Misconceptions About Reverse Mortgages

• You give up ownership: You retain title to your home. The lender has a lien on the property, similar to a traditional mortgage.
• Your heirs get nothing: Heirs inherit the home and the remaining equity after the loan is repaid. If the loan balance exceeds the home's value, FHA insurance protects them from owing the difference on a HECM.
• It's a loan of last resort: While it can be a valuable tool for financial security, it's crucial to understand all costs and obligations.
• You can never move: You can move, but you must repay the loan. If you move out permanently, the loan becomes due.

Reverse Mortgage Formula and Mathematical Explanation

Calculating the exact payout of a reverse mortgage involves several complex factors, primarily governed by the terms of the specific loan product (like the HECM or proprietary jumbo loans) and regulatory guidelines. The core concept is determining the Maximum Loan Amount (MLA) based on the borrower's age, the home's value, and prevailing interest rates, and then calculating how much of that is available as cash, considering upfront costs.

Maximum Loan Amount (MLA) Calculation (Simplified HECM Example)

The MLA is the maximum amount you can borrow. For HECM loans, it's generally the lowest of these three figures:

1. The home's appraised value.
2. The FHA maximum mortgage limit for your area (e.g., $1,149,825 in 2024 for most areas).
3. A calculated amount based on the age of the youngest borrower, the expected interest rate, and the expected home appreciation rate. This is the most complex part and is often determined using a specific HECM formula provided by the Department of Housing and Urban Development (HUD).

A simplified approach to estimate the MLA involves using factors derived from HUD's actuarial tables. These factors increase with age. The formula is roughly:

MLA = (Home Value or FHA Limit) * (Age Factor)

However, the actual MLA calculation is more nuanced and considers the expected mortgage interest rate and the expected home cost rate.

Available Loan Proceeds

Once the MLA is determined, the actual amount you can access initially (Available Loan Proceeds) is the MLA minus:

• Upfront Mortgage Insurance Premium (UFMIP) – for HECM loans.
• Origination fees, appraisal fees, title insurance, recording fees, etc.
• Any existing mortgage balance that needs to be paid off.

Available Loan Proceeds = MLA - UFMIP - Origination Fees - Other Closing Costs - Existing Mortgage Balance

Payout Options and Loan Balance Growth

The available proceeds can be taken as a lump sum, monthly payments (tenure or term), a line of credit, or a combination. Regardless of how you take the money, the loan balance grows over time. The balance increases due to:

• The amount of funds you draw.
• Accrued interest on the loan balance.
• Ongoing MIP (for HECM loans).

The loan balance will eventually equal the total amount owed when the loan becomes due and payable.

Variables Table

Reverse Mortgage Variables

Variable	Meaning	Unit	Typical Range
Home Value	Current appraised market value of the home.	USD ($)	$100,000 – $1,000,000+
Youngest Borrower Age	Age of the youngest person on the loan.	Years	62+
Interest Rate	Annual interest rate charged on the loan balance.	Percent (%)	4.0% – 8.0%
Loan Term	Duration for payout options or loan activity.	Years	1 – 35
Loan Type	Type of reverse mortgage product.	N/A	HECM, Proprietary
Initial MIP (UFMIP)	Upfront mortgage insurance premium for HECM.	Percent (%)	1.25% – 2.0% (of MLA)
Origination Fees	Fees charged by the lender for originating the loan.	USD ($)	$0 – $6,000 (HECM limits apply)
Maximum Loan Amount (MLA)	The maximum amount that can be borrowed.	USD ($)	Varies significantly based on factors.
Available Loan Proceeds	The amount accessible to the borrower after costs.	USD ($)	Varies significantly.
Accrued Interest	Interest that accumulates on the loan balance over time.	USD ($)	Increases over time.
Ongoing MIP	Annual mortgage insurance premium (paid monthly).	Percent (%)	0.5% (of outstanding loan balance)

Practical Examples (Real-World Use Cases)

Example 1: Supplementing Retirement Income

Scenario: Sarah, age 70, owns her home outright, valued at $500,000. She receives $1,500/month from Social Security and $1,000/month from a small pension, totaling $2,500/month. She needs an additional $800/month to comfortably cover her living expenses. She opts for a HECM with an estimated 5.5% interest rate, a 15-year payout term, and assumes $4,000 in closing costs and MIP.

Inputs:

• Home Value: $500,000
• Borrower Age: 70
• Interest Rate: 5.5%
• Loan Term: 15 Years (for payout calculation)
• Loan Type: HECM
• Initial MIP: 2% (of MLA, let's estimate MLA around $350,000 for calculation purposes, so ~$7,000 MIP)
• Origination Fees & Costs: $4,000

Calculator Output (Illustrative):

• Estimated Max Loan Amount (MLA): ~$350,000
• Estimated Initial Loan Balance (MLA + MIP + Fees): ~$361,000
• Available Equity: $500,000
• Estimated Monthly Payout (over 15 years): ~$1,050

Financial Interpretation: Sarah can receive approximately $1,050 per month for 15 years. This significantly boosts her monthly income to $3,550, allowing her to live more comfortably without needing to sell her home. The calculator helps her visualize the potential monthly income stream available from her equity.

Example 2: Covering Unexpected Medical Expenses

Scenario: John and Mary, both 80, own their home valued at $600,000 with no existing mortgage. John recently had a significant medical procedure, and they anticipate $50,000 in uncovered medical bills. They decide to use a reverse mortgage to access a lump sum to cover these costs. They choose a HECM with a 6.0% interest rate and assume $5,000 in closing costs and MIP.

Inputs:

• Home Value: $600,000
• Youngest Borrower Age: 80
• Interest Rate: 6.0%
• Loan Term: N/A (Lump Sum)
• Loan Type: HECM
• Initial MIP: 2% (of MLA, let's estimate MLA around $400,000, so ~$8,000 MIP)
• Origination Fees & Costs: $5,000

Calculator Output (Illustrative):

• Estimated Max Loan Amount (MLA): ~$400,000
• Estimated Available Lump Sum Payout: ~$387,000 (MLA – MIP – Fees)
• Available Equity: $600,000

Financial Interpretation: The calculator shows they could access approximately $387,000 as a lump sum. This is more than enough to cover their $50,000 medical bills. They can choose to take only the $50,000 needed, which would reduce their initial loan balance and subsequent interest charges, or take a larger amount for a safety net. The calculator helps them understand the maximum potential access to their equity.

How to Use This Reverse Mortgage Calculator

Our reverse mortgage calculator is designed to provide a quick estimate of the funds you might access. Follow these simple steps:

1. Enter Home Value: Input the current estimated market value of your primary residence.
2. Enter Borrower Age: Provide the age of the youngest borrower (must be 62 or older).
3. Select Interest Rate: Input an estimated annual interest rate. This is a variable rate for HECM, so using a conservative estimate is wise.
4. Choose Loan Term: Select the term if you plan to receive funds as a monthly payment stream. For lump sum or line of credit, this might be less critical for the initial payout calculation but affects long-term projections.
5. Select Loan Type: Choose between HECM (most common, government-insured) or Proprietary (for higher-value homes).
6. Estimate Initial MIP: For HECM, this is typically around 2% of the maximum loan amount or FHA limit. The calculator uses a percentage input for flexibility.
7. Input Origination Fees & Costs: Estimate the total closing costs, including lender fees, appraisal, title, etc.
8. Click 'Calculate Payout': The calculator will instantly update the results.

Reading the Results

• Primary Result (Estimated Payout): This shows the estimated amount you could receive, either as a lump sum or the initial monthly payment amount, depending on the loan structure assumed.
• Max Loan Amount (MLA): The maximum amount you are eligible to borrow based on the inputs.
• Available Equity: Your home's value minus any existing mortgage balance (assumed $0 in this calculator).
• Estimated Monthly Payout: If you selected a term, this shows the approximate monthly payment you could receive.
• Chart & Table: Review the chart for loan balance growth projections and the table for a breakdown of assumptions and key figures.

Decision-Making Guidance

This calculator provides an estimate. Reverse mortgages are complex financial products with significant costs and obligations. Always consult with a HUD-approved reverse mortgage counselor and a trusted financial advisor before proceeding. Consider factors like your long-term needs, heirs' situation, and alternative financial options.

Key Factors That Affect Reverse Mortgage Results

Several critical factors influence the amount of money you can access through a reverse mortgage and the overall cost of the loan. Understanding these is crucial for making informed decisions:

1. Borrower's Age: This is a primary determinant. The older the youngest borrower, the higher the amount you can typically borrow. This is because the lender assumes a shorter period before the loan is repaid, reducing their risk.
2. Home Value: A higher appraised home value generally leads to a higher maximum loan amount (MLA). However, the MLA is also capped by FHA limits for HECM loans or lender limits for proprietary loans.
3. Interest Rates: Reverse mortgages, especially HECMs, often have variable interest rates. Higher interest rates increase the loan balance faster due to accrued interest, reducing the net proceeds available over time and increasing the total amount owed at the end of the loan.
4. Loan Type (HECM vs. Proprietary): HECM loans have specific FHA-mandated limits on loan amounts and fees. Proprietary (jumbo) reverse mortgages are designed for higher-value homes and may have different calculation methods and fee structures, potentially offering higher loan amounts but often with different cost profiles.
5. Upfront Costs and Fees: These can be substantial. They include the initial Mortgage Insurance Premium (MIP) for HECM, origination fees, appraisal fees, title insurance, recording fees, and servicing fees. These costs are typically rolled into the loan balance, increasing the amount that accrues interest.
6. Payout Method: How you choose to receive funds impacts the calculation. A lump sum provides immediate access to a large amount but incurs interest on the entire sum from day one. A line of credit offers flexibility but only accrues interest on the amount drawn. Monthly payments (term or tenure) provide a steady income stream, with interest accruing on the drawn amounts plus the growing balance.
7. Existing Mortgage Balance: If you still have a balance on your existing mortgage, this must be paid off from the reverse mortgage proceeds before you receive any remaining funds. This directly reduces the amount of available equity.
8. Home Equity: The amount of equity you have is fundamental. The reverse mortgage is secured by your home's equity. More equity generally means a higher potential loan amount, up to the MLA limits.

Frequently Asked Questions (FAQ)

Q1: Can my heirs inherit the home if I have a reverse mortgage?

Yes. Your heirs inherit the home. They will need to repay the loan balance, typically by selling the home. If the loan balance exceeds the home's value, the FHA insurance on a HECM covers the difference, so they won't owe more than the home is worth.

Q2: Do I have to make monthly payments on a reverse mortgage?

No, you do not make monthly principal and interest payments. However, you must continue to pay property taxes, homeowners insurance, and maintain the home. Failure to do so can lead to loan default.

Q3: What happens if the value of my home decreases?

For HECM loans, the FHA insurance protects you. The loan balance will grow, but you or your heirs will never owe more than the home's value at the time of sale (or the FHA limit, whichever is less). For proprietary loans, the terms may differ.

Q4: Can I use a reverse mortgage to buy a home?

Yes, there is a specific program called the "Reverse Mortgage for Purchase" (RMP) that allows seniors to purchase a new primary residence using a reverse mortgage. This is often used by those downsizing.

Q5: How is the interest rate determined for a HECM?

HECMs typically have variable rates tied to an index like the Secured Overnight Financing Rate (SOFR). The rate includes a margin set by the lender. You can also opt for a fixed rate, but this is usually only available for lump-sum payouts and may be higher.

Q6: Are there any age restrictions for a reverse mortgage?

Yes, all borrowers must be at least 62 years old. For joint applications, the youngest borrower's age is used to calculate the loan amount.

Q7: What are the ongoing costs of a reverse mortgage?

Ongoing costs include servicing fees, ongoing Mortgage Insurance Premiums (for HECM, currently 0.5% of the loan balance annually), and interest that accrues on the loan balance. You are also responsible for property taxes and homeowners insurance.

Q8: Do I need to get counseling before applying for a reverse mortgage?

Yes, for HECM loans, you are required to receive counseling from an independent, HUD-approved third-party agency before you can close on the loan. This ensures you understand the product's implications.