The amount that can be borrowed for a reverse mortgage is based on three things:
1. the age of the youngest borrower; 2. the current interest rate; and,
3. the lesser of the appraised value or the FHA insurance limit.
In order to get the loan, all owners of the property must be age 62 or older and must sign the mortgage. Since the payments will not be made until all the owners die, sell, or move out, the age and life expectancy of the youngest owner is used to determine the amount that can be borrowed. Since a reverse mortgage, like any other loan, requires the borrower to pay interest, the interest rate will affect the total amount borrowed. Even though a reverse mortgage can have an adjustable interest rate, the current rate will determine how much can initially be borrowed.
A loan based on the appraised value does not mean that the borrower would receive that amount. It assumes that there are no liens on the property. If there are, they would have to be paid before the loan would be made. They could be paid out of the loan proceeds, but less would be left to go to the borrower.
The FHA insurance limit is the maximum that can be borrowed, regardless of the value of the property. The limit changes as property values change and differs in different areas. The current limits are between just over $200,000 and just under $363,000. For Alaska, Guam, Hawaii, and the Virgin Islands, the FHA mortgage limits may be adjusted up to 150% of the ceiling.