How Much Money Can A Person Receive

Section 4. How Much Money Can A Person Receive With A Reverse Mortgage

The amount of money that you can receive with a reverse mortgage generally depends on 3 factors:

1. The value of your home and the amount of equity that you have in your home (equity is the difference between your home's value and the amount of any existing mortgage(s) that you owe on your home).

Because a reverse mortgage is actually a loan with your home being used as collateral, the value of your home and your equity are key factors. The more that your home is worth and the more equity that you have in your home, the more money that you may receive with a reverse mortgage. If you do not have a mortgage on your home, you have 100% equity and are in good shape for a reverse mortgage. If you have a mortgage and owe an amount that is 40% or more of your home's value, you may not be in a very good position for a reverse mortgage, unless your home is worth a great amount.

2. The age of the youngest person who owns an interest in your home.

A reverse mortgage lender estimates the maximum amount that it is willing to loan on a home taking into consideration the home's value and the homeowner's equity. As the homeowner receives money the reverse mortgage debt increases. And since the loan is not paid off until the person stops living in the home, the interest earned is also added to the debt and the debt increases. A younger person has a greater potential for a longer time for interest to be earned on the loan and added to the debt. An older person would likely have a shorter time for interest to be earned, and, therefore less interest would be added to the debt. If two homes had the exact same value and the homeowners had the exact same equity, but one was owned by a younger person and one owned by an older person, the younger person would receive less money than the older person.

3. The interest rate that your lender expects to receive.

Since reverse mortgage loans earn interest which is added to the debt, the higher the interest rate, the more interest that is added to the debt, and the less money that is available to the homeowner.

Reverse Mortgage Debt Limit:

As stated above, the amount that will be owed to your reverse mortgage lender is the amount of money that you receive plus the interest earned. Therefore, it is possible that the total amount owed to your reverse mortgage lender can be greater than the value of your home. However, reverse mortgage lenders are limited to receiving as repayment the value of the home. They cannot seek any additional repayment from you or your heirs.

This ebook is for general information only and may or may not be applicable to your situation. If you have any questions whatsoever, talk with a mortgage broker or lawyer licensed in your state.

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