For homeowners aged 62 and older, a reverse mortgage can be a powerful tool to access home equity without selling their home. This guide explains how it works and what the calculator estimates.
What is a Reverse Mortgage?
Unlike a traditional mortgage where you make monthly payments to a lender, in a reverse mortgage, the lender makes payments to you.
- You retain ownership of the home.
- You are not required to make monthly mortgage payments.
- The loan is typically repaid when the last surviving borrower moves out, sells the home, or passes away.
Key Factors in the Calculation
The amount of money you can receive (the "Principal Limit") depends on:
- Age of the Youngest Borrower: The older you are, the more money you can typically access.
- Current Interest Rate: Lower rates generally result in higher loan amounts.
- Appraised Home Value: Subject to FHA lending limits (if using a HECM).
- Existing Liens: Any current mortgage balance must be paid off using the reverse mortgage funds first.
Ways to Receive Your Money
Our calculator helps you estimate the impact of different payout options: Lump Sum: A single, large payment (typically for paying off an existing debt). Tenure: Fixed monthly payments for as long as you live in the home. Term: Fixed monthly payments for a specific number of years. Line of Credit: Funds are available when you need them, and the unused portion grows over time.
FAQ
Will I still own my home?
Yes. You keep the title to your home. You are still responsible for property taxes, homeowners insurance, and home maintenance.
Can my heirs still inherit the home?
Yes. When the loan becomes due, your heirs can choose to pay back the loan (often by selling the home or refinancing) and keep any remaining equity.
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Disclaimer: Reverse mortgages are complex financial products with significant long-term implications. This calculator provides an estimate for educational purposes. Consult with an HUD-approved reverse mortgage counselor before proceeding.