The amount of money you can receive from a reverse mortgage generally ranges from 40 to 60% of the appraised value of your home. The older you are, the more you can receive, as loan amounts are based primarily on your life expectancy and current interest rates. The value of your home is one of the most important factors in how much you can borrow with a reverse mortgage. Generally speaking, you can usually get between 40% and 60% of the appraised value of your home.
And the higher the value of your home, the more money you can access. While it may seem like income to the homeowner, the Internal Revenue Service (IRS) considers the money to be a loan advance. Reverse mortgages also complicate things for your future heirs, so that's something you should also consider. Because of the opening rate, the initial mortgage insurance premium and other closing costs, refinancing a reverse mortgage should be reserved for situations where it is necessary to add a spouse to the loan, more capital is needed, or the interest rate can be reduced substantially.
Variable-rate reverse mortgages are linked to a benchmark index, often the Treasury Constant Maturity Index (CMT). The Department of Housing and Urban Development (HUD) requires that all potential reverse mortgage borrowers complete a HUD-approved counseling session. In addition to the possibility of scams aimed at older people, reverse mortgages have some legitimate risks. If you own a home, condo or townhome, or a prefab home built on or after June 15, 1976, then you may be eligible for a reverse mortgage.
When the homeowner moves or dies, the proceeds from the sale of the home go to the lender to repay principal, interest, mortgage insurance, and reverse mortgage charges. Reverse mortgage loans have closing costs just like traditional mortgages, and you'll pay them with the proceeds from your loan. However, if your home is worth more, you might consider a giant reverse mortgage, also called a reverse sole property mortgage. In New York, where cooperatives are common, state law also prohibits reverse mortgages in cooperatives, allowing them only in residences and condominiums for one to four families.
The exact amount a reverse mortgage can offer you depends on several factors, as well as the lender you've chosen to work with. If you're considering getting a reverse mortgage to support your retirement, talk to a mortgage expert today. Reverse mortgage borrowers must also keep up to date with property taxes and homeowners insurance. Mortgage Equity Conversion (HECM) mortgages, the most common type of reverse mortgage, come with a series of one-time fees and ongoing costs.
With a product as potentially lucrative as a reverse mortgage and a vulnerable population of borrowers who may have cognitive problems or desperately seek financial salvation, scams abound.