What Is A Reverse Mortgage?

A reverse mortgage is a loan against your home that does not need to be repaid throughout the time you live there. Cash from reverse mortgages is distributed to you in several ways: in a single lump sum; as an ongoing monthly cash advance; as a line of credit that allows you to decide how much cash you need at a particular time; or as a combination of these methods.




Unlike a traditional mortgage, you do not repay a reverse mortgage until you permanently move out of your home, sell your home, or pass away. Reverse mortgages also differ from traditional loans in that you must be 62 years of age or older to qualify, and there are no income, asset, employment, or credit qualifications. However, both loans are similar in that they are liens against your home, they can both be refinanced and paid off, and the lending process is similar. In fact, you can repay your existing traditional mortgage with a reverse mortgage, provided you own your home and meet the age requirement.

Calculating a Reverse Mortgage

Ninety percent of U.S. reverse mortgages to date have been insured by the Department of Housing and Urban Development. HUD’s reverse mortgage formula, which determines the maximum amount you can receive, is determined by the borrower’s age, current interest rate, and appraised home value. Generally, the older you are, the more valuable your home is, and the lower its interest rate, the more cash you can get. You can calculate this amount at HUD’s “Home Equity Conversion Mortgages for Seniors” page.

Lookup tables also come into play when calculating reverse-mortgage limits. HUD has a Mortgage Limits page where you can look up limits for your area or several areas. Your lender will also be able to answer any questions you might have about formulas and lookup tables.

As you’re beginning the process of researching reverse mortgages, you’ll find that the Internet is a powerful resource for calculating potential loan amounts. There are many online reverse mortgage calculators available, but before using one, make sure you understand the information you’ll need to provide, as well as the factors that create results.

Here is a sampling of online reverse mortgage calculators:

You’ll find many more online calculators by using a search engine such as Google or Yahoo. Make sure to reality-check any figures with a trusted financial advisor. In addition, when researching multiple loan products, be certain to get all the facts necessary before signing on the dotted line. Due diligence can save you a good deal of money after you’ve selected the reverse mortgage loan that best meets your needs.