How Does the Loan Amount Work for Reverse Mortgages?

First:

• • Your age plays a big role. The older you are, the more you can borrow. Why? Lenders figure you’ve got a shorter time left in the home, so they can lend more of the equity up front. For example, a 62-year-old might get less than an 80-year-old on the same house.

Second: 

• • It’s tied to your home’s value. Your lender will order an appraisal to confirm the value of the house.

Third:

• • Interest rates matter. The lower the rate, the more you can borrow, because the loan balance won’t grow as fast over time. The lender looks at current rates—fixed or adjustable—and plugs that into their formula.

Finally:

• • They take a percentage of that appraised value, adjusted for your age and rates. It’s called the “principal limit.” Say your home’s worth $400,000, you’re 70, and rates are low— you might get a principal limit of around $200,000. But if there’s an existing mortgage, that gets paid off first, shrinking what’s left for you. No mortgage? You keep the full amount.

You don’t get it all in cash upfront unless you choose a lump sum. You can also pick monthly payments (fixed for a set time or for as long as you live there) or a line of credit you draw from as needed, which actually grows over time with unused portions. The catch is, whatever you take—plus interest—builds up as a loan balance, repaid later when the home’s sold or you’re gone.

Reverse mortgages can be a useful financial tool for eligible seniors looking to supplement income, pay for healthcare, or cover living expenses, but they also come with complexities that should be thoroughly understood before proceeding.

Learn more about eligibility requirements for a reverse mortgage, situations where a reverse mortgage is best used, and common myths around reverse mortgage that we debunk with facts