When you obtain a reverse mortgage, you offer the equity in your house as collateral and receive monthly payments from the lender while you live in the house. If you have equity in your home, you can obtain a reverse mortgage through the federal Housing and Urban Development agency or through a state program. How much you can get in a reverse mortgage depends on your home value, your age, the type of reverse mortgage you select and the type of mortgage insurance premium you select.
A reverse mortgage is backed by the equity in your home. The mortgage lender will determine your equity based on the lesser of your home's appraised value, the reverse mortgage loan limit for your area or the sale price of your home. For example, if the FHA loan limit for reverse mortgages in your area is $100,000 but your house appraises at $80,000 in equity, your reverse mortgage cannot be higher than $80,000.
Your age also determines how much you can obtain from a reverse mortgage. The older you are, the shorter the term of your loan is likely to be, and lenders will generally provide larger reverse mortgages to older people.
Types of Reverse Mortgages
There are five different types of reverse mortgages. The first is called a tenure mortgage. With a tenure mortgage, you receive equal payments every month as long as you occupy the property. Another type is the term mortgage, with which you will receive equal monthly payments for a fixed period of time -- 24 months, for example. The third type, the line of credit mortgage, provides you with a balance on which you can draw at any time and in any amount until you exhaust the line of credit. A modified tenure mortgage allows you to draw on a line of credit but also sends you monthly payments as long as you live in the house, and a modified term mortgage allows you to draw on a line of credit and also receive payments for a fixed period of time. The type of reverse mortgage you choose will also determine the amount you can receive.
Mortgage Insurance Premium
There are two types of mortgage insurance premiums for reverse mortgages. The standard option is 2 percent, and the Home Equity Conversion Mortgage saver option is 1/10th of a percent. Although the cost is less with the Home Equity Conversion Mortgage saver option, you can borrow more money if you use the standard option.