Use this FHA Reverse Mortgage Calculator (also known as a Home Equity Conversion Mortgage or HECM) to estimate the maximum available cash you can receive based on your home value, age, and current interest rate environment.
FHA Reverse Mortgage Calculator
Estimated Available Cash:
$0.00Detailed Calculation Steps
Click 'Calculate' to see the steps.
FHA Reverse Mortgage Calculation Formula:
Step 1: Determine Maximum Claim Amount (MCA)
$$ \text{MCA} = \min(\text{Home Value}, \$1,149,825 \text{ (FHA Limit)}) $$Step 2: Calculate Principal Limit (PL)
$$ \text{PL} = \text{MCA} \times \text{PLF}(\text{Age}, \text{Rate}) $$Where PLF is the Principal Limit Factor, derived from FHA tables based on borrower age and expected rate.
Step 3: Calculate Initial Mortgage Insurance Premium (IMIP)
$$ \text{IMIP} = 0.02 \times \text{MCA} $$Step 4: Determine Net Principal Limit (NPL) and Available Cash
$$ \text{NPL} = \text{PL} – \text{IMIP} $$ $$ \text{Available Cash} = \text{NPL} – \text{Existing Mortgage Balance} $$Formula Source: HUD Official HECM Limits | FHA Official Website
Variables Used in the Calculator:
- Estimated Home Value: The appraised value of your home, capped by the FHA’s national mortgage limit.
- Age of Youngest Borrower: The minimum age requirement for an HECM is 62. This age, along with the interest rate, determines the Principal Limit Factor.
- Expected Interest Rate: The rate used to calculate the loan amount. A higher rate results in a lower Principal Limit.
- Existing Mortgage Balance/Liens: Any outstanding debt on the property that must be paid off with the reverse mortgage funds first.
Related Calculators:
- HECM Lump Sum Disbursement Calculator
- Reverse Mortgage Line of Credit Growth Estimator
- Mortgage Refinance Break-Even Calculator
- Home Equity Loan vs. HECM Comparison
What is an FHA Reverse Mortgage (HECM)?
An FHA Reverse Mortgage, formally known as a Home Equity Conversion Mortgage (HECM), is the only reverse mortgage program insured by the U.S. Federal Government. It allows homeowners aged 62 or older to convert a portion of their home equity into cash without having to make monthly mortgage payments. The loan balance becomes due when the last surviving borrower moves out, sells the home, or passes away.
The HECM is considered “non-recourse,” meaning the borrower or their estate will never owe more than the value of the home when it is sold, regardless of the loan balance. This FHA insurance provides a crucial layer of protection for the borrower and their heirs.
How to Calculate FHA Reverse Mortgage (Example):
- Gather Data: Assume a Home Value of $400,000, Borrower Age of 70, Expected Rate of 6.0%, and an Existing Mortgage of $50,000.
- Determine MCA: Since $400,000 is below the FHA limit, the MCA is $400,000.
- Find PLF: Using HECM tables, the PLF for a 70-year-old at 6.0% might be approximately 0.55.
- Calculate PL: $400,000 (MCA) $\times$ 0.55 (PLF) = $220,000.
- Calculate IMIP: $400,000 (MCA) $\times$ 2.0\% = $8,000.
- Determine NPL: $220,000 (PL) – $8,000 (IMIP) = $212,000.
- Calculate Available Cash: $212,000 (NPL) – $50,000 (Existing Mortgage) = $162,000.
Frequently Asked Questions (FAQ):
- How old do I have to be for an FHA reverse mortgage? The youngest borrower on the title must be at least 62 years old to qualify for an HECM.
- Do I have to make payments on a reverse mortgage? No monthly mortgage payments are required. However, you must still maintain the property, pay property taxes, and pay homeowners insurance.
- Is the loan amount taxable income? No. The funds received from an HECM are loan proceeds, not income, and are therefore generally not subject to federal income tax.
- What is the biggest risk of a reverse mortgage? The biggest risk is defaulting on property taxes or insurance, which can lead to foreclosure, even if you owe nothing on the principal loan.