How to Calculate a Reverse Mortgage Step by Step

To calculate how much you can get from a reverse mortgage, start with the lesser of your home’s appraised value or the FHA lending limit ($1,249,125 for case numbers assigned on or after January 1, 2026), multiply that figure by a HUD Principal Limit Factor tied to the youngest borrower’s age and the expected interest rate, and then subtract the upfront mortgage insurance premium, the origination fee, third-party closing costs, any required set-aside for taxes and insurance, and the payoff of any existing mortgage or lien. What remains is the cash available to you. Most borrowers end up with somewhere between 25 and 75 percent of the capped home value, depending on how old they are and where rates sit.

The Four Inputs You Need Before You Start

Four numbers drive every step. If any of them is a guess, the result is a guess.

The first is the age of the youngest borrower, or of an eligible non-borrowing spouse if one applies. HUD’s formulas use that age to estimate how long the loan will be outstanding. Younger means longer, and longer means a smaller percentage of equity available today.¹ Every borrower on a HECM must be at least 62.²

The second is the appraised value of the home, set by an FHA-approved appraiser and reviewed by the lender.³ A Zillow estimate or a tax assessment will not do.

The third is the expected interest rate. On an adjustable-rate HECM, that rate is the lender’s margin added to the 10-year Constant Maturity Treasury yield or an approved SOFR-based index. On a fixed-rate HECM, it is simply the note rate.¹ A lower rate produces a bigger loan.

The fourth is the balance of anything already secured by the home. Mortgages, home equity lines, tax liens — all of it has to be paid off at closing from the reverse mortgage proceeds.⁴ A $150,000 existing mortgage reduces your available cash by the full $150,000.

Step 1: Find the Maximum Claim Amount

The maximum claim amount is the lesser of your appraised home value or the FHA national lending limit. For 2026, that limit is $1,249,125, and it applies uniformly across the country, including Alaska, Hawaii, Guam, and the U.S. Virgin Islands.⁵

If your home appraises at $400,000, your maximum claim amount is $400,000. If it appraises at $1,500,000, the calculation still uses $1,249,125; the equity above the cap simply does not count toward the loan.

Step 2: Apply the Principal Limit Factor

The principal limit is the gross pool of money the loan can produce before any costs come out. To get it, multiply the maximum claim amount by a Principal Limit Factor. HUD publishes these factors in tables indexed by age and expected interest rate.⁶

Older borrowers get higher factors because the loan is expected to be outstanding for fewer years. Lower expected rates also produce higher factors, because less interest will accrue over the life of the loan. The spread is wide. A 62-year-old at a 6 percent expected rate might see a factor around 0.357, while a 90-year-old at 3 percent could land above 0.70.⁶

A quick example. A 72-year-old with a $500,000 home and a factor of 0.52 has a principal limit of $260,000. That $260,000 is not what the borrower walks away with. It is the ceiling the costs and payoffs are drawn against.

Step 3: Subtract the Mandatory Costs

Several costs come out of the principal limit before any cash reaches you. Each one is formula-driven, so you can estimate them before you ever sit down with a lender.

Initial Mortgage Insurance Premium

Every HECM borrower pays an upfront FHA insurance premium of 2 percent of the maximum claim amount — not the principal limit, and not the net loan. On a $500,000 maximum claim amount, that is $10,000. The statute authorizes up to 3 percent, but HUD has held the rate at 2 percent since October 2017.⁷ This premium guarantees you will keep receiving your scheduled payments if the lender fails, and it ensures neither you nor your heirs will ever owe more than the home’s value when the loan comes due.

Origination Fee

The lender’s origination fee is capped by federal regulation. It equals 2 percent of the first $200,000 of the maximum claim amount plus 1 percent of anything above $200,000, with a floor of $2,500 and a ceiling of $6,000.⁴ A $500,000 maximum claim amount produces $4,000 + $3,000 = $7,000, which the cap trims to $6,000. A $125,000 home would produce less than $2,500, so the floor applies. Lenders can charge less than the formula allows, and some do.

Third-Party Closing Costs

Title insurance, title search, recording fees, credit reports, the appraisal, and flood certifications come out of the loan proceeds too. These vary by location and lender but typically add a few thousand dollars.⁸

Life Expectancy Set-Aside

If the lender’s financial assessment finds you may not keep up with property taxes and homeowners insurance, part of the principal limit gets set aside to cover them. A fully-funded LESA has the lender pay those bills directly. A partially-funded LESA, available only on adjustable-rate HECMs, sends you semi-annual disbursements to pay them yourself.⁹ Either way, the set-aside reduces available cash. The lender determines the type based on residual income thresholds that vary by household size and region.

Payoff of Existing Liens

Any remaining mortgage balance, home equity line, or tax lien is paid off at closing from the loan proceeds.⁴ For most borrowers this is the single largest deduction. If you owe $180,000 and your principal limit is $260,000, only $80,000 is left before fees.

One Cost That Does Not Reduce Your Available Cash

HUD also charges an annual mortgage insurance premium of 0.5 percent of the outstanding loan balance, accrued monthly. You do not pay it at closing. It is added to the balance each month, which is one reason a reverse mortgage balance grows faster than borrowers expect. On a $200,000 balance, it runs about $83 per month.

Step 4: Check the First-Year Disbursement Cap

Even after the deductions, you may not be able to touch everything immediately. On an adjustable-rate HECM, your first-year access is capped at the greater of 60 percent of the principal limit, or your mandatory obligations (upfront MIP, origination fee, closing costs, and lien payoffs) plus 10 percent of the principal limit.⁴ When mandatory obligations are large — typically because of an existing mortgage payoff — the second path wins. When they are small, the 60 percent path controls.

You choose at closing how much of any additional available amount to draw during the first year or leave accessible, and that election is final. After month 12, remaining funds become fully available.

Fixed-rate HECMs work differently. They offer a single lump-sum draw at closing, bounded by the same greater-of formula. Whatever you do not take at closing is gone. There is no future access.

A Full Worked Example

A 72-year-old owns a home appraised at $600,000 and still owes $120,000 on it. The expected interest rate is 5.5 percent.

Maximum claim amount: $600,000, since the appraisal is below the 2026 cap of $1,249,125.
Principal Limit Factor: roughly 0.382 for age 72 at a 5.5 percent expected rate.
Gross principal limit: $600,000 × 0.382 = $229,200.
Initial MIP (2 percent of MCA): $12,000.
Origination fee: ($200,000 × 0.02) + ($400,000 × 0.01) = $8,000, trimmed to the $6,000 cap.
Estimated third-party closing costs: $3,000.
Existing mortgage payoff: $120,000.
Net cash available: $229,200 − $12,000 − $6,000 − $3,000 − $120,000 = $88,200.

That $88,200 is roughly 15 percent of the home’s appraised value. The existing mortgage consumed most of the principal limit. With no existing mortgage, net proceeds would be closer to $208,200.

Now check the first-year cap. Mandatory obligations total $141,000. Sixty percent of the $229,200 principal limit is $137,520. The greater-of test picks mandatory obligations plus 10 percent of the principal limit, allowing up to $163,920 in the first year. Since only $88,200 of cash is left after the required deductions, the cap does not actually bite here. For a borrower with no existing liens on the same home, though, the 60 percent floor would restrict first-year access to about $137,520 out of the $229,200 principal limit.

Why the Line of Credit Keeps Growing

On an adjustable-rate HECM, the unused portion of a line of credit grows each month. The growth rate equals one-twelfth of the current mortgage interest rate plus the 0.5 percent annual mortgage insurance premium, and it compounds.¹ The growth is not additional equity; it is additional borrowing capacity. For a borrower who takes a small initial draw and lets the line sit, the available balance can increase substantially over a decade. That matters when you are deciding how much to pull now versus later.

When the Loan Has to Be Repaid

Calculating the loan is only half the picture. The balance becomes due when the last surviving borrower dies, when every borrower conveys ownership, when the home stops being a borrower’s primary residence, when a borrower is absent for more than 12 consecutive months because of illness and no other borrower lives there, or when property taxes, insurance, or HOA fees go unpaid.¹⁰

The HECM is non-recourse. The lender’s only remedy is the property itself, so if the balance exceeds the sale price when the loan comes due, neither you nor your heirs owe the difference.¹⁰ Heirs who want to keep the home can pay off the loan balance or 95 percent of the current appraised value, whichever is less.¹¹

1
eCFR. 24 CFR 206.3 – Definitions
2
Consumer Financial Protection Bureau. Can Anyone Take Out a Reverse Mortgage Loan?
3
HUD. Appraisal Review and Reconsideration of Value Updates
4
eCFR. 24 CFR Part 206 – Home Equity Conversion Mortgage Insurance
5
U.S. Department of Housing and Urban Development (HUD). HUD’s Federal Housing Administration Announces Loan Limits
6
Department of Housing and Urban Development. FY 2018 PLF Tables – Revised Introduction
7
eCFR. 24 CFR 206.105 – Amount of MIP
8
Consumer Financial Protection Bureau. How Much Does a Reverse Mortgage Loan Cost?
9
eCFR. 24 CFR 206.205 – Property Charges
10
eCFR. 24 CFR 206.27 – Mortgage Provisions
11
Consumer Financial Protection Bureau. With a Reverse Mortgage Loan, Can My Heirs Keep or Sell My Home After I Die