Reverse Mortgage Calculator
A reverse mortgage is so-named because it allows a homeowner to relinquish home equity in exchange for a lump-sum. It’s billed as a great way for homeowners to unlock some of the equity in their homes, but it comes with its downsides and complications. Take a look at our reverse mortgage calculator to understand how much you could be offered and read on to learn more about reverse mortgages.
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How Much Money do you Get from a Reverse Mortgage?
There are two numbers to consider when determining how much money you can get from a reverse mortgage. The first is 80% – the maximum equity that you can use. The second is $679,650, the maximum amount you can receive with Home Equity Conversion Mortgages. There are other types of reverse mortgages available, but this is by far the most common.
As far as equity goes, it comes down to three factors:
- Your age: You need to be at least 62 years old to qualify.
- The value of your home: The total market value and your current stake in that value will dictate how much equity you can unlock, and if you can unlock any at all.
- The interest: Typically charged at a higher rate than a traditional mortgage.
Do I Qualify for a Reverse Mortgage?
To qualify for a HECM reverse mortgage you need to:
- Be least 62 years old
- Own your own home
- Use the home as your main residence
- Have no mortgage or a very small mortgage
- Ensure the house is in good condition
A number of checks will be run prior to the agreement taking place and there are also fees associated with a reverse mortgage.
What is the Downside to a Reverse Mortgage?
The biggest downside to a reverse mortgage is that you lose valuable equity in your home. This means you have fewer options in the future should you encounter financial issues. It also means you have less to give your heirs.
Another downside to a reverse mortgage is the cost. Not only does the balance increase over time, but there are also multiple fees associated with it. See our section on “What Will a Reverse Mortgage Cost Me?” below to learn more.
What are the Benefits of a Reverse Mortgage?
There is really only one benefit with a reverse mortgage, but it’s a big one: You get a big chunk of money. This money can either be paid in monthly installments or as a lump-sum. If you’re a homeowner over the age of 62 then you may feel like you’ve spent your life paying off a loan that you can’t really enjoy. Sure, you get to live in the house and don’t have to worry about mortgage payments, but you don’t see any money.
A reverse mortgage allows you to tap into the equity that you’ve spent your life earning, giving you a cash sum that you can use to go on holiday, make major home improvements, start a business, or do anything else you have your heart set on.
Can you Lose your House with a Reverse Mortgage?
You can lose your house with a reverse mortgage, but only in certain circumstances. The following circumstances can trigger a default on the loan and may lead to foreclosure:
- Your home is not your primary residence anymore, because:
- You move;
- You live somewhere else for more than six months of the year without medical exemption;
- You spend 12 consecutive months away.
- You die and your partner is not listed as a co-borrower.
- You cease paying taxes and/or homeowner’s insurance.
- You fail to meet the standards set by the FHA.
Do you Make Monthly Payments on a Reverse Mortgage?
You are expected to keep up with taxes and property insurance. You are also expected to pay for repairs and maintenance, as well as any applicable homeowner association fees. With a Home Equity Conversion Mortgage (HECM) you are expected to pay 2% of the loan at closing and 0.5% per year after that, but there are no additional ongoing fees.
As for the principal and the interest, this only needs to be paid once you move or sell the house.
What Will a Reverse Mortgage Cost Me?
Reverse mortgage rates are higher than traditional mortgage rates and there are also a number of fees, the extent of which will depend on the size of the loan and how it is paid. The fees can include:
- Counseling: A HECM requires you to undergo counseling. This costs $125 and will outline the process (including the pros and cons) in detail.
- Appraisal: The home needs to be appraised, costing anywhere up to $500 depending on its size and value.
- Closing: As with traditional mortgages, there are a number of closing fees to pay, including credit checks, records, and title insurance. You will also be charged an insurance fee.
- Origination Fee: Finally, there is a loan origination fee, which is charged as a percentage, usually 2% for the first $200,000 and 1% thereafter.
- Ongoing: There are ongoing fees as well, including an annual mortgage insurance premium and servicing fees.
If you are concerned about any of these fees, then discuss them with your provider. They are obliged to discuss these details with you and to provide you with a complete rundown of the costs.
What are the Alternatives to a Reverse Mortgage?
A reverse mortgage may seem like the best and indeed the only way to unlock some of the equity in your home, but there are some alternative options:
- Downsize: If you own your house outright then you can sell-up, move into a smaller house, and do what you want with the leftover cash. You’ll likely get much more value of out your home than you would with a reverse mortgage.
- Rent: If you want money to spend on a cruise, a trip around the world, or something similar, then why not sell your house and rent somewhere else? You’ll lose the security and stability of a home and you can’t pass it onto your heirs, but you can use whatever income you have to cover that rent and keep all the cash from the sale.
- Refinance: You’ll typically get a much better deal by refinancing than you would by taking out a reverse mortgage, but you will need to begin making monthly repayments again.
- HELOC: A Home Equity Line of Credit will allow you to tap into your home equity without charging high fees. However, there are more limitations and if your house drops in value the lender may insist that you pay it off.