How Age Affects Your Reverse Mortgage Amount

Posted by Charles D

February 14, 2009

When looking to calculate your reverse mortgage amount it is important to consider the age of the applicant. When banks consider reverse mortgage risks, they take into account the age of the applicant as the older they are the less risk they have of “living longer.”

Age affects reverse mortgage loan terms. The major factors affecting HECM loans/Reverse Mortgages are the age of the borrower, the value of the home, the borrower’s equity in the home, the interest rate of the loan, and the manner in which the borrower wants to receive the proceeds of the loan.

The process is confusing, in large part because it does, in fact, work like a typical mortgage in reverse. Let’s begin with the fact that the proceeds of HECM loans are tied to the ages of the borrowers, with older borrowers receiving higher percentages of their homes’ value. A 62-year old HECM applicant, for example, can be expected to stay in his home for more years than a 72-year-old applicant. Accordingly, the projected interest expense applied to his loan will be for a longer period, and this expense will be paid to the lender out of the remaining equity in his home. Lenders thus offer smaller shares of a home’s equity to younger borrowers. “Your net proceeds on a reverse mortgage are about 85 percent of your age times the value of your house,” says Lewis.

Age of the borrower is the second most important factor in determining a reverse mortgage amount behind the value/equity and location of the house.