Change is a constant in life, happening all around us, every day. In fact, change is probably the only thing we can dependably predict. Whether it’s a new fashion trend making a comeback, your local coffee shop switching its blend, or the rise and fall of grocery prices, these shifts—big or small—affect our daily lives. This is especially apparent in the housing and real estate market. From fluctuating interest rates and home values to shifting migration patterns, these changes can have a significant impact on everyone, whether you’re a current homeowner or looking to purchase a home.
If you’re already a homeowner, especially one with a reverse mortgage, increasing home values could be of particular interest to you. That’s because the appraised value of your home directly influences how much you can borrow over the life of your loan, also known as the principal limit. While the terms of your reverse mortgage were set when you initially took out the loan, if your home’s value has increased since then, you may be wondering if you can take advantage of this change.
The good news is that home values have seen strong growth in recent years. In fact, data from the Federal Reserve Bank of St. Louis shows that the median sales price of a new home sold in the United States in Q2 2024 was $412,300 —up significantly from $322,500 5 years ago and $288,000 ten years ago.1
So, let’s get back to the question at hand: What exactly do rising home values mean for reverse mortgages? While your specific circumstances play a role, as noted, the key takeaway is simple: home value and the principal limit share a congruent relationship. In general, the more your home is worth, the more cash you could receive. This means that refinancing your existing reverse mortgage could be a smart move if your home’s value has increased by a sizable amount.2 Or, if you’re considering tapping into your home equity with a reverse mortgage for the first time, the current market—with its combination of rising home values and interest rates that have come down from recent highs —could offer a particularly advantageous opportunity.
But increased home values aren’t just for those looking to access more cash. Refinancing could also benefit borrowers by leaving more money for their estate.3 Before diving into refinancing options, let’s revisit some key fundamentals of reverse mortgages to help you better understand the process.
Reverse Mortgage 101
A Home Equity Conversion Mortgage (HECM) – often referred to as a reverse mortgage – is a loan that allows you to convert a portion of your hard-earned home equity into cash. One of its greatest benefits is that monthly mortgage payments are optional, as long as you keep up with loan obligations, such as paying real estate taxes, homeowners insurance, and property maintenance. Without the burden of monthly mortgage payments, you can free up more cash to use as you see fit, leading to a world of possibilities.4 Do you want to catch up on debt payments? Set aside an emergency fund? Put the cash towards a luxury item you’ve been saving for? It’s up to you to decide how to best use the funds to make your golden years shine even brighter.
As noted earlier, your home’s appraised value plays a key role in determining your loan’s principal limit—the amount of cash you can access. Depending on age, borrowers can typically qualify for 35% to 60% of their home’s value. Therefore, as home prices increase, so does the potential borrowing power. To get a quick estimate of how much you can access, check out Longbridge’s Reverse Mortgage Calculator. Alongside home value, there are other important factors that impact your available funds: your age and the expected interest rate. Generally, the older you are, the more cash you can access. And inversely, the lower the current interest rate, the more funds available to you.
It is also important to understand the eligibility requirements for a reverse mortgage. One example is that you must be 62 or older and live in the home as your principal residence. You must also have kept up with your property taxes going back at least two years and remained current on homeowners insurance and property maintenance. If you have an existing mortgage on your home, you could still qualify—the proceeds from your reverse mortgage first go towards paying this off. While the most common type of property to qualify is single-family homes, other types, such as multi-family homes, manufactured homes, and condominiums, can also qualify if they meet certain guidelines.
Receiving Your Funds
When you take out a reverse mortgage, you have several flexible options for receiving your funds. The first is to opt for a lump sum, where, as the name suggests, you receive a single upfront payout. Because it has a fixed interest rate, it protects you against future fluctuations. However, the maximum amount you may receive in the first year is capped at 60% of the principal limit.5
The second option is setting up monthly payouts, an attractive method for those looking to supplement their income and create long-term stability. The third option, opening a line of credit, is the most versatile method of distribution. You can withdraw a portion of the funds upfront and leave the rest available for future use. This unused portion continues to grow over time, providing a safeguard for future cash needs. 6,7
Finally, you may opt for any combination of these methods, creating a customized distribution plan that suits your financial goals. Working with your lender and loan officer will help ensure that the terms of your reverses mortgage align with your long-term objectives.
Refinancing a Reverse Mortgage
Now that we’ve covered how a reverse mortgage works, let’s explore what refinancing one looks like and why you might consider doing it.
Refinancing a reverse mortgage involves replacing your current loan with a new one, often to secure better terms and conditions. The primary reason many borrowers refinance is to access more equity—if your home has increased in value, refinancing can allow you to tap into that additional home equity, raising your principal limit.
Other reasons to refinance might include a change in personal circumstances, or a desire for more favorable loan options, like lower interest rates. Whatever your motivation, it is always a good idea to look at the bigger picture when deciding to refinance.
First, you will first want to confirm you still meet the eligibility requirements for a reverse mortgage, including keeping up with property obligations. It’s also wise to evaluate whether your lender is offering you the best terms and support, along with reviewing any associated costs with refinancing—such as closing costs and origination fees. While refinancing will pay off your existing mortgage, it’s crucial to weigh the potential benefits of accessing more equity against the costs involved.
Once you decide to proceed with the refinancing process, you will undergo financial assessment and counseling, just as you did for your original loan. You’ll then submit your loan application, get your home appraised, and go through the underwriting process. After your loan is approved, you’ll attend a closing meeting to finalize the refinance and sign documents. You can expect to access your funds three days after closing!
While the idea of going through this process again might seem overwhelming, rest assured that the U.S. Department of Housing and Urban Development (HUD) has implemented the “five times the benefit rule.” This rule ensures that the funds you gain from refinancing must be at least five times greater than the costs incurred, meaning the process will truly benefit you in the long run.2 It’s all about providing peace of mind and assurance that the process will pay off…literally!
Putting Flexibility to Work for You
Perhaps the greatest advantage of reverse mortgages is their inherent flexibility. Not only can you choose amongst a range of distribution methods to arrange your payment plan for its highest utility to you, but you can also refinance when you have an opportunity to increase your funds and benefits.
For older Americans, this may be particularly valuable. Increased cash flow can significantly enhance your retirement, offering both stability and the freedom to live the life you’ve imagined. Beyond covering day-to-day expenses or critical healthcare expenditures (though these are certainly great uses!), a reverse mortgage can open up possibilities like finally taking that dream vacation, visiting family across the country, or diving back into hobbies and passions you’ve put on hold.
In addition to helping you achieve your goals, having extra funds on hand can allow for important home improvements that make aging in place more comfortable and safe. Or, you can bolster your “rainy day” fund to ensure peace of mind for whatever the future may bring. The beauty of a reverse mortgage lies in its ability to be tailored to your specific needs—you can choose a distribution method that balances both immediate cash flow and long-term financial security, keeping you comfortable now and prepared for the future.
Like any financial decision, choosing a reverse mortgage or refinancing your current loan should be done thoughtfully. Understanding the process and weighing the benefits and costs is crucial. That’s where the pros at Longbridge Financial come in. To get a sense of how much cash you can access today, our loan officers are ready to walk through the process with you and provide you with a no cost, no obligation quote. Speaking to a qualified professional can help you not only get a sense of what you stand to gain, but also how to make it happen. To speak with one of our knowledgeable loan officers, contact Longbridge today!
