I am 87 and received a HECM Loan, maximum claim $250,000 on June, 2006. Credit limit due to age and other factors was due to reach 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 and 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 at 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 and I would be happy to go over your individual information with you.
Firstly, there are a lot of terms with a reverse mortgage that are not like or even used in a standard or forward mortgage.
I see that you use the term “Maximum Claim” and give a figure of $250,000.
The Maximum Claim on the reverse mortgage in 2020 would have been the lower of the property value or the HUD lending limit, not the maximum amount you can borrow.
This limit is under a temporary increase to $756,600 at this time that was put in place under the American Recovery and Reinvestment Act of 2009 and has been extended until the end of 2013 and will revert to $417,000 at that time if it is not extended again.
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.
This is the amount that the lender then uses to determine your benefit amount.
What is the Principal Lending Limit?
The benefit amount is also known as the Principal Lending Limit and this is the amount you receive based on your parameters and 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 available to you in the early stages, the balance available to you grew over time on the unused portion.
This growth of the line is what allowed you to ultimately borrow more total dollars than if you had borrowed all your available funds all at one time…although even with growth in the line of credit, you may not be able borrow all the way to your Maximum Claim Amount.
Just for the record though, I have seen several simulators where the funds available to the borrower actually 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.
Current Principal Lending Limits
2020's Reverse Mortgage Principal Limit Factors
Age of Borrower Principal Limit Factor Current Lending Limit
65 54.2% $765,600
70 57.6% $765,600
75 60.9% $765,600
85 68.5% $765,600
90 73.0% $765,600
PLF tables source: https://www.hud.gov/sites/documents/august2017plftables.xls
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.
So 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 or not it is realistic that 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 $765,600.
I don’t know the value of your home currently, but many houses are again seeing some appreciation currently.
Especially if your home was worth more than the Maximum Claim Amount at the time you did your first loan, you may be an ideal candidate for a HECM to HECM refinance. If you did a loan with a monthly servicing fee, you could eliminate that as well.
For you to be eligible, HUD requires that you must receive a minimum of 5 times the cost of the loan in new benefits with the new loan.
You do not have to re-pay any mortgage insurance premium that you have already paid, so if your property is worth more now or if you did receive lower benefit before due to the HUD lending limits in different areas, you may qualify for a refinance at reduced costs and 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 would need to 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 just a very small return.
But this may work for you 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 a possibility for you.
Top 5 FAQs
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 a borrower based on their specific loan parameters.
Who sets the principal lending limit factors? (PLF)
The principal limit factors are determined by HUD if it is a Home Equity Conversion Mortgage (HECM). The lender only set the principal limit factor if it is a Non-HUD insured Proprietary reverse mortgage.
How is the reverse mortgage principal limit calculated?
The principal limit factor is determined by 3 pieces of information. 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 the principal limit factor will be. The higher the expected rate however, the lower the principal limit factor will be. 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.
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 that percentage will be for all product types. On the Home Equity Conversion Mortgage (HECM) program the percentage ranges from around 50% to 75% but can go even lower than 50% if rates go up from their current levels or if there is a spouse who is younger than age 62. On Proprietary products the percentage ranges from as low as around 30% to as high as 60%.
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. Currently as of January 2020 the maximum claim for the Home Equity Conversion Mortgage (HECM) is $765,600. If you have a home value of $800,000 the principal limit will be determined using a value of $765,600. For proprietary products the maximum claim is simply the home value as they are not capped by the HECM limit and therefore these products are popular for those with home values above the government limit.