Reverse Mortgage Calculator

A reverse mortgage is a loan available to homeowners aged 62 and older that allows them to convert a portion of their home equity into tax-free cash proceeds — without selling the home or making monthly mortgage payments. Instead of you paying the lender each month, the lender pays you, and the loan balance grows over time as interest and fees accrue.

The most common type is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA) and regulated by the U.S. Department of Housing and Urban Development (HUD). HECMs are available through FHA-approved lenders and come with federally mandated consumer protections, including required counseling from an approved HECM counselor before the loan can be originated.

Unlike a traditional home equity loan or a cash-out refinance, a reverse mortgage does not require repayment as long as you continue to live in the home as your primary residence, pay property taxes, keep homeowner's insurance current, and maintain the property. The loan becomes due when the last surviving borrower permanently moves out, sells the home, or passes away — at which point the heirs can repay the loan balance (typically by selling the home) and keep any remaining equity.

Reverse mortgages are not free money — they consume equity over time as the loan balance compounds at the interest rate. However, for many retirees with significant home equity but limited income, a reverse mortgage can be a powerful tool to supplement Social Security, cover healthcare costs, or simply improve quality of life in retirement. This calculator gives you a clear estimate of your principal limit, net available funds, disbursement options, and long-term balance growth so you can make an informed decision.

The principal limit is the total amount you can borrow through a reverse mortgage. It is the foundation of every other figure the calculator produces. The principal limit depends on three inputs: your home's appraised value, your age (or the age of the youngest eligible borrower), and the expected interest rate.

This calculator uses a simplified approximation of the HUD Principal Limit Factor (PLF) tables. The actual HUD tables are published annually and vary by hundredths of a percent; this tool gives a close estimate suitable for planning purposes. The two intermediate factors are an age factor and a rate factor.

The age factor rises as you get older: starting at 0.30 at age 62, it increases by 0.015 for each additional year of age up to a maximum of 0.75. An 80-year-old borrower therefore has a substantially higher age factor than a 62-year-old, reflecting the shorter loan horizon and the lender's reduced interest-accrual risk.

The rate factor decreases as interest rates rise: it equals one minus twice the decimal interest rate, but is floored at 0.50 to avoid unrealistically low limits. At a 5.5% rate the rate factor is 0.89; at 7% it would be 0.86; above 25% (a theoretical extreme) it is capped at 0.50.

The gross principal limit is simply home value multiplied by both factors. From there, mandatory upfront costs — a 2% FHA mortgage insurance premium and estimated closing costs of $5,000 — plus any existing mortgage balance you must pay off are subtracted to arrive at your net principal limit, the real cash available to you.

One of the most flexible features of a HECM reverse mortgage is the ability to choose how you receive the proceeds. This calculator supports all three primary disbursement types, and each has distinct advantages depending on your financial situation and goals.

Lump Sum

A lump sum gives you a single cash payment at closing. Under current HUD rules, the first-year draw is capped at 60% of your net principal limit (or the amount needed to pay off an existing mortgage plus 10%, if that is higher). This limit exists to protect borrowers from depleting their equity too quickly. The lump sum option is the only disbursement type available with a fixed interest rate; all other options carry adjustable rates. It works well for borrowers who need a large one-time sum — to pay off a mortgage, fund a home renovation, or consolidate high-interest debt.

Monthly Tenure Payments

Tenure payments provide a guaranteed monthly payment for as long as you live in the home as your primary residence — even if the cumulative payments eventually exceed your original principal limit. The calculator estimates the monthly amount by dividing your net principal limit by the number of months in your projected life expectancy (95 minus your age, minimum 10 years). Tenure payments are ideal for retirees who want predictable, recurring income to supplement Social Security or a pension.

Line of Credit

A HECM line of credit lets you draw funds as needed, up to your net principal limit. A distinctive and valuable feature is that the unused portion of the line of credit grows over time at the same rate as the loan interest rate. This means the longer you wait to draw, the more becomes available. The line of credit option provides maximum flexibility and is often the choice of financial planners who want to preserve the credit line as a long-term safety net.

You can also combine disbursement types — for example, taking a partial lump sum at closing and putting the remainder into a line of credit or tenure payment stream. This calculator models each option separately so you can compare outcomes before speaking with a HUD-approved HECM counselor.

Understanding the full cost picture is essential before committing to a reverse mortgage. The calculator surfaces the three largest cost categories: the upfront mortgage insurance premium, closing costs, and the ongoing interest that compounds on the growing loan balance.

Upfront Mortgage Insurance Premium (MIP)

FHA charges a 2% upfront MIP on the home's appraised value (or the FHA lending limit, whichever is less). On a $400,000 home that amounts to $8,000 collected at closing. In addition, an annual MIP of 0.5% accrues monthly on the outstanding balance for the life of the loan. The MIP protects you: if the lender fails, HUD guarantees continued disbursements, and when the loan matures, the HECM's non-recourse provision ensures you or your estate will never owe more than the home is worth.

Closing Costs

Origination fees, title insurance, appraisal, and other closing costs typically total $4,000–$7,000. This calculator uses a flat $5,000 estimate; actual costs vary by state and lender. Origination fees are capped by HUD at $6,000 for homes appraised above $200,000, which limits the up-front burden relative to the loan size.

Existing Mortgage Payoff

If you still carry a traditional mortgage, it must be paid off at closing using reverse mortgage proceeds. This reduces your net available funds dollar-for-dollar. Enter your current balance so the calculator can show you the true amount of new cash you will receive after satisfying the existing lien.

Ongoing Interest Accrual

Because you make no monthly payments, interest compounds on the growing balance throughout the life of the loan. The calculator projects your annual loan balance and remaining home equity — assuming 3% annual home appreciation — so you can see precisely how your equity may change over a 10-year horizon. In many scenarios, rising home values partially or fully offset the growing loan balance, leaving meaningful equity for heirs.

A reverse mortgage is a powerful but nuanced financial product. It is not the right choice for every homeowner, and understanding the trade-offs is critical to making a sound retirement decision.

Favorable scenarios include homeowners who are "house-rich, cash-poor" — those with substantial equity but limited liquid assets or income. Retirees who plan to age in place for many years benefit most, since the break-even on upfront costs generally requires staying in the home for at least five years. Borrowers who use a HECM line of credit as a strategic buffer — drawing from it only during market downturns to avoid selling investments at a loss — have been shown in academic research to significantly extend portfolio longevity.

Less favorable scenarios include borrowers who plan to move within a few years, homeowners with low home equity (leaving little net proceeds after fees), and those who want to preserve maximum inheritance for heirs. A reverse mortgage is also generally unsuitable if a non-borrowing spouse or co-resident depends on continued occupancy, though HUD rules do provide some protections for eligible non-borrowing spouses.

Required counseling is not just a bureaucratic hurdle — a HUD-approved HECM counselor can walk you through alternatives such as downsizing, a HELOC, or a cash-out refinance, and help you determine whether a reverse mortgage genuinely fits your needs. The counseling session costs around $125–$200 and can be done over the phone.

Use this reverse mortgage calculator as a first-pass estimate, then consult a licensed reverse mortgage lender and a HUD counselor to get precise figures based on a formal home appraisal and current market rates before making any commitment.