What Is a Reverse Mortgage Calculator?

A reverse mortgage calculator is a specialized financial tool that helps homeowners aged 62 and older estimate how much tax-free cash they can access from their home equity without selling their property or making monthly mortgage payments.

Unlike traditional mortgages, reverse mortgages allow seniors to convert part of their home equity into funds for retirement, medical expenses, or other needs, with repayment deferred until they move out or pass away. This guide explains how to use our advanced calculator, its underlying formulas, and its benefits for retirement planning.

A reverse mortgage calculator estimates the loan proceeds you may qualify for based on:

1. Home Value: Current market value of your property.

2. Borrower Age: Age of the youngest spouse (must be ≥62).

3. Mortgage Balance: Existing loan(s) against the home.

4. Interest Rates: Current rates for reverse mortgages (e.g., HECM, jumbo, or proprietary loans).

5. Payout Option: Lump sum, monthly payments, line of credit, or a combination.
The calculator factors in lending limits, fees, and ongoing costs (e.g., insurance, property taxes) to provide a realistic estimate of available funds.

How to Use the Calculator

1. 1. Enter Home Details:
   • Input your home’s current market value and outstanding mortgage balance.
   • Tip: Use an online estimator or recent appraisal for accuracy.
2. 2. Specify Borrower Information:
   • Enter the age of the youngest borrower (must be ≥62). Older borrowers typically qualify for higher proceeds due to longer life expectancy.
3. 3. Select Loan Type:
   • HECM: FHA-insured, with a 2025 limit of $1,209,750.
   • Jumbo: For high-value homes (e.g., up to $4 million).
   • Proprietary: Private loans for unique circumstances.
4. 4. Choose Payout Option:
   • Lump Sum: One-time payment.
   • Monthly Payments: Fixed monthly income.
   • Line of Credit: Draw funds as needed, with unused portions growing over time.
   • Combination: Mix of the above.
5. 5. Add Ongoing Costs:
   • Include annual property taxes, insurance, HOA fees, and maintenance costs. These must be paid to avoid loan default.
6. 6. Review Results:
   • The calculator displays available proceeds, payout options, closing costs, and monthly obligations.

How It Works: Key Formulas and Calculations

1. Principal Limit Factor (PLF)

• ● The PLF determines the percentage of home equity accessible. It is based on:
  • Age: Older borrowers receive higher percentages (e.g., 70% for an 80-year-old vs. 50% for a 65-year-old).
  • Interest Rates: Higher rates reduce the PLF.
• ● Formula: Gross Principal Limit = Min(Home Value, HECM Limit) × PLF

2. Net Principal Limit

• ● Subtracts upfront costs from the gross limit:
  • Origination Fee: Up to $6,000 for HECM loans.
  • Mortgage Insurance Premium (MIP): 2% of home value upfront + 0.5% annual premium.
  • Third-Party Fees: Appraisal, title search, etc. (~$3,000).
• ● Formula: Net Principal Limit = Gross Principal Limit – Total Upfront Costs.

3. Available Proceeds

• ● deducts existing mortgage balances:

Available Proceeds = Net Principal Limit – Mortgage Balance.

4. Payout Calculations

• ● Lump Sum: Entire available amount.
• ● Monthly Payments: Based on life expectancy and interest rates.
• ● Line of Credit: Unused funds grow at the loan’s interest rate + 0.5%.

Important Considerations

• ● Tax-Free Funds: Reverse mortgage proceeds are not taxable income.
• ● Repayment: The loan is due when the last borrower moves out or passes away. Heirs can repay the loan or sell the home.
• ● Risks: Failure to pay property taxes or insurance can lead to foreclosure.
• ● Alternatives: Consider home equity loans, downsizing, or refinancing.