Financial Freedom: How Much Can I Earn from a Reverse Mortgage

Gaining financial freedom with reverse mortgages can be possible for seniors, 62 or older. A reverse mortgage is offered by lenders as a way for homeowners who own the and live in their primary residence to tap in the home's equity. The loan provides proceeds in the form of a fixed monthly amount or available line of credit that the senior can tap into at any time as needed.

Reverse mortgages provide a way to pay for expenses such as long-term care services such as skilled nursing, assisted living, hospice and home health care. It can also be used to meet the costs associated with in-patient hospitalization services and outpatient medical services that are not paid for by Medicare Parts A and B. Durable equipment such as wheelchairs, walkers, oxygen and other required equipment can be paid for with the money derived from a reverse mortgage. Most importantly, a reverse mortgage loan can help the senior with their quality of life because it can help pay for food or other commodities the senior may require.

How the Loan Value Is Determined

The amount that a person can receive or "earn" from the reverse mortgage loan depends on the primary residence's value, less certain closing costs that are deducted from the proceeds. A reverse mortgage lender will conduct a fair-market value appraisal of the home (which is paid up-front by the home owner) to determine the offer for the reverse mortgage. The difference between the value and loan amount are determined based on the lender's established criteria.

Home Equity Conversion Mortgage Loans

Home Equity Conversion Mortgage Loans (HECM) is backed by the Fair Housing Authority (FHA) and is offered by lenders. These loans conform to the requirements of Fannie Mae and Freddie Mac and are generally viewed as safer than non-conforming reverse mortgage loans. They also have lower interest rates as a result of the government backing which means more money in the pocket of the senior.

The use of a reverse home equity mortgage by seniors can be an important financial planning tool. The money available to a borrower can give a senior peace of mind in order to meet the expenses of growing older and sustain a decent quality of life.

The amount that can be earned through a reverse mortgage is based on many factors that a lender will consider when the loan is completed. As long as the home qualifies for the loan and the borrower meets the program requirements, the earnings are equal to up to 100 percent of the home's value.