Principal limit is a unique term with the reverse mortgage and simply translates into how much you can borrow. Assuming the same data is used this number should be consistent from lender to lender. The data includes three critical numbers: age of the youngest borrower, rate, and home value. Here is a brief explanation of how the principal limit is calculated.
The age considers the youngest borrower or eligible non-borrowing spouse. Older borrowers generally qualify to borrow more or a higher principal limit. Younger borrowers generally qualify for less. As a side note, the age factor is based on actuarial age: living to 100 yrs. old.
Rates with the HECM loan are tied to long-term interest rates. This is the expected rate ( ER) FHA insures HECM loans, so they consider future rates when calculating a borrower’s principal limit. Expected rates estimate what rates are expected to be in the future, this determines how much money the borrower can receive. The expected rate will determine the principal limit, calculating a borrower’s monthly payments and setting a LESA if needed ( lifetime set aside account.) Expected rates change each Tuesday, tracking the 10 yr. CMT index published by the Federal Reserve.
Your home value is the third factor needed for calculation purposes. All lenders use the lesser of the home value or the HECM limit ( maximum claim) currently at $822,375.
To learn more about reverse mortgages, contact your local certified Reverse Mortgage Professional (CRMP) for guidance and expertise.