Higher Reverse Mortgage Limits Coming January 1st 2018
Starting in 2018, lending limits for government-insured reverse mortgages will increase, allowing borrowers the opportunity to access more of their home equity than ever before.
The vast majority of reverse mortgages are federally-insured Home Equity Conversion Mortgages (HECMs) that are backed by the Federal Housing Administration. These loans allow homeowners age 62 and older to convert a portion of their home equity into loan proceeds that can be used to supplement retirement spending.
On December 7, 2017, the FHA announced that it will increase the loan limits for HECM reverse mortgages to $679,650 next year, up from their current level of $636,150. This higher lending limit will take effect January 1, 2018 and will continue through December 31, 2018. The increase is 150% of the national conforming limit of $453,100.
2018 Reverse Mortgage Limits Example
|AGE||2017 Limits ($636,150)||2018 Limits ($679,650)||Difference|
2020's Reverse Mortgage Principal Limit Factors
|Age of Borrower||Principal Limit Factor||Current Lending Limit|
PLF tables source: https://www.hud.gov/sites/documents/august2017plftables.xls
So what do higher loan limits mean for reverse mortgage borrowers? With the Maximum Claim Amount (MCA) now set at $679,650 for 2018, this amount will now be the highest possible loan limit that can be insured by FHA on a single HECM loan.
The MCA is the lesser of a home’s appraised value or the maximum FHA lending limit. This means that if your home is appraised at $700,000, your MCA under the HECM reverse mortgage program will be the max lending limit of $679,650, since this is the lesser of the two values.
But let’s assume your home was appraised for $500,000. In this scenario, the MCA would be $500,000, rather than the max limit of $679,650.
Understanding MCA is important because lenders consider this amount when determining how much reverse mortgage loan proceeds will be available to you, also known as the principal limit.
Higher lending limits mean that some reverse mortgage borrowers can access a greater amount of home equity than in the past. This is especially true for homeowners with properties valued above the former FHA HECM max lending limit of $636,150.
To give you an idea of the impact of higher HECM lending limits compared to this year’s current limit of $636,150, let’s assume a homeowners has a property value appraised at $680,000.