Reverse Mortgage Calculator

How Does a Reverse Mortgage Provide Income?

A reverse mortgage allows homeowners aged 62 and older to convert home equity into cash without selling the home or making monthly mortgage payments. Instead of paying the lender, the lender pays you. Enter your home value and any existing mortgage balance in the calculator above to see the estimated maximum loan amount, available proceeds, lump-sum option, and monthly tenure payment. The loan balance grows over time as interest accrues, and repayment is not required until the borrower sells, moves out permanently, or passes away.

HECM: The FHA-Insured Reverse Mortgage

The Home Equity Conversion Mortgage (HECM) is the most common reverse mortgage, insured by the FHA. It is available to homeowners 62+ who live in the property as their primary residence. The maximum claim amount is $1,149,825 (2024 FHA limit). The amount you can borrow depends on your age (older borrowers get more), current interest rates (lower rates allow higher proceeds), and the home appraised value. A 72-year-old with a $400,000 home and no existing mortgage might access $200,000-$240,000. A 62-year-old with the same home might access $160,000-$180,000 because the loan must last longer.

Payout Options: Lump Sum, Line of Credit, or Monthly

Lump sum: receive all available proceeds at once. Limited to 60% of the approved amount in the first year under current rules. Best for paying off an existing mortgage or funding a specific large expense. Line of credit: access funds as needed over time. The unused portion grows at the loan interest rate plus 1.25%, increasing your available credit even if home values decline. This growth feature is unique to reverse mortgages and makes the line of credit the most flexible option. Tenure payments: receive fixed monthly payments for as long as you live in the home. Term payments: fixed monthly payments for a specified number of years. Combination: split between a line of credit and monthly payments.

Costs and Fees Associated with Reverse Mortgages

Origination fee: $2,500-$6,000 (capped at $6,000 by FHA). Mortgage insurance premium (MIP): 2% upfront plus 0.5% annually on the outstanding balance. Third-party closing costs: $2,000-$4,000 (appraisal, title, recording). Total upfront costs of $7,000-$12,000 are typically financed into the loan, reducing the available proceeds. The annual MIP and interest compound on the growing balance, accelerating the erosion of remaining equity. On a $200,000 reverse mortgage at 5% interest plus 0.5% MIP, the balance grows to approximately $291,000 after 7 years and $420,000 after 15 years, even with no additional borrowing.

What Happens When the Borrower Passes Away?

The loan becomes due when the last surviving borrower permanently leaves the home (death, move to assisted living, or selling). Heirs have options: sell the home and keep any equity above the loan balance, refinance the reverse mortgage into a traditional mortgage to keep the home, or walk away if the loan balance exceeds the home value (the FHA insurance covers the lender loss - this is "non-recourse," meaning heirs never owe more than the home value). A home worth $400,000 with a $350,000 reverse mortgage balance: heirs sell for $400,000, repay $350,000, and keep $50,000. If the balance is $450,000 and the home is worth $400,000, heirs owe nothing - the FHA insurance absorbs the $50,000 gap.

Who Benefits Most from a Reverse Mortgage?

The ideal candidate is a homeowner who plans to stay in the home long-term, has significant equity but limited liquid retirement income, and has no strong desire to leave the home equity to heirs. A retiree with a $500,000 paid-off home and $1,500/month Social Security could receive an additional $1,000-$1,500/month from a reverse mortgage tenure payment, substantially improving quality of life. Reverse mortgages also solve the cash-flow paradox faced by many retirees: asset-rich but income-poor. The home represents their largest asset but generates no spending money until they sell it or borrow against it.

Reverse Mortgage Pitfalls to Understand

Rising loan balance: interest and insurance premiums compound, eroding equity over time. A $200,000 reverse mortgage at 5.5% grows to $340,000 in 10 years. If the home only appreciates to $380,000 in that period, only $40,000 in equity remains from an original $200,000. Property obligations continue: you must pay property taxes, homeowner insurance, and maintain the property. Failure triggers loan default and potential foreclosure. Reduced inheritance: the growing loan balance shrinks the equity available to heirs. Scam risk: reverse mortgages are heavily marketed by some unscrupulous operators. Only work with HUD-approved HECM lenders and complete the required FHA counseling session, which is designed to ensure you understand the product fully before committing.

Alternatives to Consider Before a Reverse Mortgage

Downsizing: selling the home and purchasing something smaller frees equity without borrowing. A $500,000 home sold and replaced with a $250,000 home yields $250,000 in liquid equity minus selling costs. Home equity loan or HELOC: structured borrowing with lower fees than a reverse mortgage, though it requires monthly payments. Renting out a room or accessory dwelling unit: generates $500-$1,500/month without taking on debt. Property tax deferral programs: many states allow seniors to defer property taxes until the home is sold. Community programs: local and state assistance for property taxes, utilities, home repairs, and healthcare reduce the income pressure that drives reverse mortgage demand.

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