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 in 2012.  Withdrawals were denied beginning in June 2010, 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.  Correspondence with the servicer and HUD got a big SORRY.  Maybe I’m delusional, but something doesn’t add up here.  Am I wrong?

Without seeing your closing documents or even your Loan Comparison Page, I can only guess what is going on here but let me take a stab at it, and if this does not seem to come anywhere near your circumstances, please feel free to contact me.  I would be happy to go over your individual information with you.

Firstly, there are a lot of terms with a reverse mortgage that is not like or even used in a standard or forward mortgage.  You use the term “Maximum Claim” and give $250,000.  The Maximum claim on the reverse mortgage in 2021 would have been the lower property value or the HUD lending limit, not the maximum amount you can borrow.

We now know that the “temporary increase” because of the American Recovery and Reinvestment Act of 2009 remained in effect until property values increased enough so that the HUD limit grew above and beyond this level with home appreciation to the current level of $970,000.  It is set to increase again in 2023 to $1,089,300.

But again, those are the maximum claim amounts and not the loan amounts that borrowers receive when they get their loans, and it is not the maximum your property can be valued to be eligible for the loan.  Your home can be valued higher, but that is the most that will be considered for the reverse mortgage benefit or loan amount.

If you had a Maximum Claim of $250,000 at the time you took out your reverse mortgage, that would mean that your property either appraised for that amount or that was the HUD maximum for your area at the time (if your loan closed before the nationwide move to a $417,000 maximum claim amount).

What is the Principal Lending Limit?

The benefit amount or your loan amount is also known as the Principal Lending Limit, and this is the amount you receive based on your parameters.

From this Principal Lending Limit, you would subtract any mortgage or other liens you had to pay off, any costs you incurred for the loan, and the remaining funds would be available for you to take as a lump sum, as a monthly distribution, to leave in a line of credit and take as you desire or as a combination of any or all of those options.

Depending on how quickly you used the loan in the early stages, the balance available grew over time on the unused portion.  This growth of the line allowed you to ultimately borrow more total dollars than if you had borrowed all your available funds at one time…although even with the growth in the line of credit, you may not be able to borrow to your Maximum Claim Amount.

Just for the record, though, I have seen several simulators where the funds available to the borrower exceeded the original maximum claim amount, but that was in the case of borrowers who had no liens to pay off and allowed the line to grow for 6 to 7 years with no draws whatsoever.

The amortization schedule you received with your loan when you first signed your documents would have shown you how long the line would last and how the balance would rise, but only if you advised your lender how much you planned to draw yearly so they could run that number for you.

Otherwise, the system cannot account for draws and numbers about which it has no information.  Without knowing how much you owe on current liens at the time and how much you drew from the loan annually, I could not give you a helpful comment on whether, realistically, there would be any money left on the original line.

However, I may be able to offer a ray of hope.  As I told you, HUD has raised the Lending Limit (or Maximum Claim Amount) to a current limit of $1,089,300 starting in January 2023.

I don’t know the value of your home currently, but many houses have seen significant amounts of appreciation since 2006.  If you live in an area that has experienced growth in real estate values in the past 18 years, you may have an excellent opportunity to tap back into that appreciation.

This is especially true if your home was worth more than the Maximum Claim Amount when you did your first loan.  In those cases, borrowers could not use all their equity on the first loan since the house was worth more than the lower HUD maximum claim amount.

If these circumstances are true for you, you may be an ideal candidate for a HECM to HECM refinance.  If you did a loan with a monthly servicing fee or a higher mortgage insurance renewal premium, you could also eliminate that fee or lower that premium.

Refinance Eligibility 

To be eligible, HUD requires you to receive at least 5 times the loan cost in new benefits with the new loan.

You do not have to re-pay any mortgage insurance premium that you have already paid (as long as this is your first refinance), so if your property is worth more now or if you did receive lower benefits before due to the HUD lending limits in different areas, you might qualify for a refinance at reduced costs.  You may be able to get more benefits that way.

If you live in an area where the third-party costs are about $3,000, and your additional mortgage insurance premium runs another $2,000 based on the increase, you must net at least $25,000 from the new loan to be eligible.

It will not work for all borrowers, and the 5 times rule is a bit tougher for a reason.  That way, people will not try to get seniors to refinance loans for a small return.  But the refi does help many borrowers, and you may want to investigate it.

If you decide to check into it, you can speak to a reverse mortgage specialist who can look up property values in your area, look at your most recent statement and see if a refinance is possible.

Principal Limit FAQs

ARLO recommends these helpful resources:

• HUD’s 12-Month 60% Disbursement Limit Explained
• Reverse Mortgages: Remaining Principal Limit After 12 Months