Did you know your age plays a huge role in several different aspects of a reverse mortgage? There’s a lot more to it than just meeting the minimum age requirement.
Reverse mortgages have gained popularity as a financial tool for older adults to tap into their home equity while remaining in their homes. This unique loan product allows you to convert a portion of your home equity into income tax-free1 funds, providing a valuable supplement to your income during your retirement years.
One of the most crucial factors when considering a reverse mortgage is your age. Age plays a significant role in determining the eligibility, terms, and benefits associated with a reverse mortgage. Before you unlock your home’s value, let’s look at how your age affects different elements of a reverse mortgage. You might be surprised just how much of an impact age has! Spoiler alert: it literally pays to be older!
Requirements and Eligibility
To be eligible for a FHA-insured Home Equity Conversion Mortgage (HECM) reverse mortgage loan, you must be at least 62 years old. When it comes to a proprietary reverse mortgage, like Longbridge Platinum, the minimum age requirement drops to 55 in some states.2 The reason behind these age requirements is rooted in actuarial principles and ensures that a loan’s repayment is primarily reliant on a borrower’s life expectancy and the home’s value. It’s important to note that, while it is a major factor, age is not the only factor for reverse mortgage eligibility.
Loan Amount and Loan-to-Value Ratio
Your age also influences the loan amount and the loan-to-value (LTV) ratio. Generally, the older you (or the youngest borrower) are, the higher the loan amount you may qualify for. This is because a reverse mortgage calculation considers the expected duration of the loan and the borrower’s life expectancy. Older homeowners are likely to have a shorter life expectancy than a younger borrower, resulting in a larger available loan amount.
So, with a reverse mortgage, the older you are, the more money you can receive. Sounds pretty simple right? Well, here’s a layer of nuance: if your birthday is within six months of your closing date, your loan proceeds will be based on the age you’ll be on your next birthday – and that means more money in your pocket.
Here’s a basic example to illustrate this feature: George is applying for a reverse mortgage – how will his age affect the amount of money he can receive?
- Birthdate: 12/28/1948
- Age: 74
- Closing date: 7/15/2023
- Number of days between his birthday and closing date: < 183 (six months)
Because George will be 75 years old in six months or less from his closing date, he is eligible to receive a higher loan amount than what he would have received for age 74.
Interest Rates and Loan Repayment
Interest rates for reverse mortgages can be fixed or adjustable, and your age affects the interest rate charged on the loan. Younger borrowers may receive lower interest rates due to the longer duration of the loan, while older borrowers may face slightly higher interest rates because of the shorter expected loan term.
With a reverse mortgage, you’re not required to make monthly mortgage payments as long as you meet all the loan terms including paying your property tax, insurance, and maintenance costs. Instead, the loan is repaid when you (or the last remaining borrower) no longer occupy the home as your primary residence or fail to meet loan terms. The repayment of a reverse mortgage is usually triggered upon a “maturity event” which can include the homeowner’s death, sale of the property, or when they move out permanently.
Loan Benefits and Features
Age significantly impacts the benefits and features associated with reverse mortgages. For instance, both HECM and Longbridge Platinum3 loans offer a feature called a line of credit (LOC). This LOC grows over time, providing you with access to additional funds.4 And, you probably guessed it, that growth rate is tied to your age! Younger borrowers may experience slower LOC growth rates compared to older borrowers, potentially limiting their access to funds in the future.
There you have it! You’ve equipped yourself with the knowledge you need to make a more informed decision and better understand how your age is a vital determinant when it comes to a reverse mortgage. Let’s recap what we covered; older homeowners generally enjoy more substantial loan amounts, higher loan-to-value ratios, and longer deferral periods, allowing them to leverage their home equity to improve their financial well-being during retirement. While age is a critical factor in reverse mortgages, it is essential to consider other factors before deciding on this financial option.
It’s crucial to thoroughly grasp the terms, costs, and implications associated with reverse mortgages before proceeding. And, as with any financial decision, careful consideration is key to ensuring a reverse mortgage aligns with your short- and long-term goals, meets your financial needs, and makes sense for any heirs or estate. Working with a reputable reverse mortgage lender and seeking independent financial advice can help you make a decision based on your own unique circumstances.
At Longbridge, we understand how the Power of Home® can boost your financial peace of mind in retirement. If you’re interested in using your home equity to your advantage, contact our team today or use this handy calculator to determine how your age (or future age) factors into your reverse mortgage equation!