Reverse mortgages have become increasingly popular with seniors, with volume soaring 78% between 2001 and 2005. One of the most common questions consumers ask about reverse mortgages is: How much money can I get?

Four major factors determine the size of a reverse mortgage, according to the National Reverse Mortgage Lenders Association. These include the age of the borrower, the value and location of their home, and current interest rates. Get more information from the U.S. Department of Housing and Urban Development here.

A reverse mortgage is a loan available to homeowners 62 and older that enables them to borrow against the equity in their home. Loan proceeds can be used for any purpose, and taken as a lump sum, line of credit, fixed monthly payments (for up to life), or a combination. The most popular type of reverse mortgage is the federally insured FHA Home Equity Conversion Mortgage (HECM).

Four major factors determine how much money a borrower – either an
individual or couple – can get from a reverse mortgage ..

 They are:

  The age of the borrower at the time the reverse mortgage closes. The older the borrower, the larger the share of home equity they can borrow against. This is because remaining life expectancy decreases with age. The younger the borrower, the larger the percentage of home equity that is reserved to assure future payment of the accrued interest on the loan. In the case of a couple seeking a HECM, the loan size is based on the age of the youngest borrower.

The appraised value of the borrower’s home - the higher the value of the home, the more a senior can borrow.

The location of the borrower’s home (HECM only). The FHA single-family loan limit for the particular area where the home is located affects the size of reverse mortgage that a borrower can get. The FHA loan limit varies by county and, in 2003, ranges from a low of $154,896 (for non-metropolitan and rural areas) to $280,749 (high-cost metropolitan areas). Some counties have FHA limits between these two extremes. [Note: Once the value of a home exceeds the FHA loan limit for the area, the size of the HECM can’t get any larger.]

Current interest rates: The lower the interest rate, the larger the reverse mortgage. This is because a current variable-rate interest benchmark is used to determine the initial size of a reverse mortgage. Because interest rtes are at all-time lows, the current combination of low rates and high home values make it an optimal time for seniors to obtain or refinance a reverse mortgage. However, this "window of opportunity" - the ability to get the largest reverse mortgage ever - will start begin to close as interest rates increase.

One common misperception of prospective borrowers is that they can qualify for a reverse mortgage equal or close in size to the value of their home, or at least the local FHA loan limit. This isn’t the case. The actual loan amount will be equal to a smaller amount than these two figures (but still a substantial fraction of the home’s value), in order to ensure that there will likely be sufficient equity left in the home when the loan comes due to assure full repayment.

In addition to the four factors already mentioned, the size of a reverse mortgage is also affected by:

The type of reverse mortgage selected. In addition to the HECM, which accounts for 90%-95% of all reverse mortgages made today, there are two other reverse mortgage products. One is the Fannie Mae Home Keeper loan, available in every state. The other is Cash Account, a proprietary “jumbo” reverse mortgage product developed by Financial Freedom Senior Funding Corp., Irvine, CA. Available in half the states, Cash Account is usually taken out on more expensive homes because it permits a much larger reverse mortgage than HECM or Home Keeper.

Loan disbursement options: The borrower has several choices on how to take out the funds from a reverse mortgage. The proceeds can be taken as a lump sum, line of credit, fixed monthly payment, or a combination. For a HECM taken out as a line of credit, an added benefit is that the unused amount of the line of credit grows automatically each year based on a formula.

With a reverse mortgage, the borrower - not the bank - holds title to the home during the life of the loan.  The loan must be repaid when the borrowers no longer occupy the home as as their principal residence. At the time of repayment, the borrower (or their heirs / personal representative) decide whether to pay off the reverse mortgage and keep the home, or sell the home to pay off the load.  any remaining equity goes to the borrowers (or their heirs / personal representative).

Seniors can qualify for a reverse mortgage even if they have an existing first mortgage on their home. Consumers can find out how much money they can get from a reverse mortgage by calling a reverse mortgage lender, or by using an online “reverse mortgage calculator.” A calculator, a state-by-state list of reverse mortgage lenders and other important information is available on the Web site of the National Reverse Mortgage Lenders Association.