Each lender uses a specific formula to determine the amount of money a senior homeowner can receive from a reverse mortgage. This amount takes into consideration a variety of factors from age to distribution type.

Reverse mortgages are typically based on the equity in your home and can provide financial stability and assistance in paying bills. Reverse mortgage payments may be used for a variety of debts, including long-term care payments, monthly utilities and living expenses.

Factors that Determine a Reverse Mortgage Payout

While the home equity that’s built up in your home plays a big factor in how much a lender is willing to give with a reverse mortgagee, it’s not the sole factor. Other factors considered for the payout include:

  • Borrower’s Age. Seniors must be at least 62 years of age to qualify for a reverse mortgage. Typically, the older an individual is, the more you can borrow because the loan is likely paid off sooner.
  • Property Value. The amount of equity is determined by the amount owed on the property subtracted from the current resale value.
  • Current Interest Rates. Monthly payments aren’t owed with a reverse mortgage, but interest continues to add up on the current loan. The amount of interest is factored into how much cash is available for payout.
  • Distribution Type. How you choose to receive the money can affect the amount of the loan. A line of credit typically provides the greatest payout while a lump sum offers the least amount.

Reverse Mortgage Payment Options

There are three options for reverse mortgage payouts, including:

  • Credit: A line of credit allows you to borrow money from the loan as it’s needed. Interest and fees are only due on the amount you borrow.
  • Monthly Payment: Monthly payouts provide a specific amount of money for a fixed number of months. Interest and fees are only due on what you’ve drawn.
  • Lump Sum: A lump sum allows you to receive the entire loan proceeds in one payment. Interest and fees are paid on the entire amount until the loan is paid back in full.

The amount you can draw on a reverse mortgage can make it possible to have financial stability throughout your retirement years. It’s important to understand how to manage the payout amount in order to receive funds on a consistent monthly basis.