I am 87 and received a HECM Loan.  The maximum claim is \$250,000.  Due to age and other factors, the credit limit was due to reach the maximum claim.  Withdrawals were denied when the balance was around \$225,000, and no withdrawals have been allowed since the servicer has been getting compound interest each month.  HUD has been accessing fees and premiums.  Maybe I’m delusional, but something doesn’t add up here.  Am I wrong?

## Understanding the Maximum Claim Amount

The Maximum Claim is used to determine your reverse mortgage benefits or loan proceeds, which is known as the Principal Limit.  The Maximum Claim Amount is determined by the lower of one of three things: the appraised value of the property, the purchase price on a purchase transaction, or the HUD lending limit in effect at the time.

Once the Maximum Claim Amount is determined, the HECM calculator then considers other factors, age(s) of the borrower(s), value, and current interest rates at the time to determine the Principal Limit or proceeds available for the borrower(s) under the reverse mortgage program.

Borrowers need to remember, though, that the Maximum Claim Amount that they see at the start of their loan is defined by the CFPB as:

The lesser of the appraised value of the home, the sale price of the home being purchased, or the maximum limit HUD will insure.  The maximum claim amount is one factor used to calculate how much a homeowner can borrow with a reverse mortgage loan. -CFPB

## Maximum Claim Amount in Principal Limit Calculations

The Maximum Claim Amount is just one of the factors used in the calculation to determine how much money the borrower will receive in the Principal Limit or loan amount.  It is not a maximum benefit to be paid out to the borrower with the loan.

The Maximum Claim Amount will usually be the appraised value of the property but, at times, can be less if the transaction is a sale when the home is sold at a price that is less than the appraised value or when a property is valued higher than HUD’s stated Maximum Claim Amount for the program.

For example, in 2024, HUD’s stated program Maximum Claim Amount is much higher than when you received your loan due to housing prices increasing significantly since then.  In 2024, the Maximum Claim Amount will be \$1,149,825.

When a borrower’s home is valued above the Maximum Claim Amount, it doesn’t mean they cannot get a reverse mortgage.  It means they will not receive further proceeds when the home is valued above that limit.

A borrower with a home valued at \$1,300,000 with all the same factors (age, rates, etc.) would receive the same amount of money as a borrower with a property valued at \$1,149,825 due to the Maximum Claim Amount, but depending on how they draw their funds and how they allow their lines of credit to grow, either one could far outlast the other based on their borrowing patterns.

## 2024 HECM Reverse Mortgage Benefits by Age

Age of BorrowerPrincipal Limit FactorCurrent Lending Limit
6236.3%\$1,149,825
6538.4%\$1,149,825
7042.0%\$1,149,825
7544.9%\$1,149,825
8049.3%\$1,149,825
8555.4%\$1,149,825
9062.3%\$1,149,825
*Principal Limit Factors taken from HUD.gov using an example expected rate of 5.875%. To arrive at your NET principal limit, you must deduct reverse mortgage costs, including upfront insurance (approx. 3%). PLF tables source: https://www.hud.gov/sites/documents/august2017plftables.xls

## Understanding the Growth Feature of Your Reverse Mortgage Line of Credit

You have the line of credit program (if you had the fixed rate program, you would have been required to take a full draw at the start of the loan, and there would not have been any additional funds available for subsequent payments).

It has a growth feature that allows the funds remaining in the line to grow at the same percentage as your interest plus your Mortgage Insurance Premium (MIP) combined.

So, for example, if the interest on your loan was 2.5% and your MIP is .5%, the unused funds in your line of credit would grow in availability at 3%.  Each year, that rate changes as your interest accrual rate changes.

Therefore, your Principal Limit, or the loan proceeds available to you, will fluctuate based on the draws you take (your Principal Limit is reduced by the amount of draws you take from your line) and the growth of your credit line (your line increases by the amount of the growth on the line based on the unused portion).

## Initial Disclosures and the Importance of Monthly Statements

Borrowers receive initial disclosures with amortization schedules that give examples of the relationship between the Maximum Claim Amount and the Principal Limit, but unfortunately, they are only estimates and cannot possibly accurately foretell future interest rates or borrower borrowing habits.

They are only examples and can vary significantly once borrowers begin taking draws and interest rates change.  This is why borrowers need to pay attention to the monthly statements they receive from their servicer.

The statement breaks down everything happening on the loan every month.  We have an article online to help people read and understand their statements at: https://reverse.mortgage/understanding-statement.

## Steps to Take if You Have Questions

If this general explanation doesn’t answer all your questions or if your servicer’s statement is different and doesn’t look the same, don’t hesitate to contact them and make them explain it to you.

If you need further assistance, there are attorneys and counseling companies that advertise low-cost assistance who can advocate for you so that you don’t wait until after you are out of funds to find out there was a misunderstanding of the Maximum Claim Amount and Principal Limit.

Also, if you received your loan that long ago, you might benefit from a refinance now under new values and new Maximum Claim Amounts, and that’s worth looking into.

## FAQs

Q.

### What is the principal limit on a reverse mortgage?

The principal limit is essentially the loan amount on a reverse mortgage.  It is the total amount of money available to borrowers based on their specific loan parameters.
Q.

### Who sets the principal lending limit factors?  (PLF)

HUD determines the principal limit factors if it is a Home Equity Conversion Mortgage (HECM).  The lender only sets the principal limit factor if it is a Non-HUD insured Proprietary reverse mortgage.
Q.

### How is the reverse mortgage principal limit calculated?

3 pieces of information determine the principal limit factor.  For a Home Equity Conversion Mortgage (HECM), those are the Home Value (or Max Claim), whichever is less, the expected interest rate, and the age of the youngest borrower or spouse.  The higher the value and the older you are, the higher the percentage of the principal limit factor will be.  However, the higher the expected rate, the lower the principal limit factor.  For proprietary products, the same 3 items factor into the calculation.  The only difference is the higher the interest rate, the higher the principal limit factor on proprietary products.
Q.

### What percentage of equity can you get on a reverse mortgage?

The percentage of equity you can get from a reverse mortgage will depend on the age of the youngest borrower or spouse, interest rates, and product type.  The older you are, the higher the percentage for all product types.  On the Home Equity Conversion Mortgage (HECM) program, the percentage ranges from 38% (Age 62) to as high as 72% (Age 96+) at current interest rate levels as of December 2022 but can go lower if there is a spouse who is younger than 62.  However, when rates reach the floor for the HUD calculator, which they did as recently as 2021 and could do again in the future, the percentage ranges from 52% (Age 62) to as high as 75% (Age 92+).  On Proprietary products, the percentage ranges from as low as around 29% (age 55) to as high as 51% (Age 87+).
Q.

### What is a reverse mortgage maximum claim?

The reverse mortgage maximum claim is the cap on the value that can be used to calculate your principal limit.  As of January 2024, the maximum Home Equity Conversion Mortgage (HECM) claim is \$1,149,825.  If you have a home value of \$1,200,000, the principal limit will be determined using a value of \$1,149,825.  For proprietary products, the maximum claim is simply the home value, as the HECM limit does not cap them, and therefore, these products are popular for those with home values above the government limit.