The Department of Housing and Urban Development is making more proceeds available for some reverse mortgage borrowers under new principal limit factors (PLFs) released on June 23 via Mortgagee Letter 2014-12. New factors will go into effect as of August 4, 2014.
Definition of Principal Limit (PLF) - Principal Limit is the maximum lifetime amount an age 62+ borrower can take out on a reverse mortgage. Calculation of the Principal Limit is a formula that uses the age of the youngest borrower, the maximum claim amount (the lesser of the house's appraised value or the FHA's national $625,500 maximum loan amount for a reverse mortgage),and the expected average mortgage interest rate.
The new table raises PLFs for certain borrowers, meaning they can now access more funds with a reverse mortgage than before in today’s low interest environment.
Here is a summary of the changes:
- Younger primary borrowers (ages 64 to 77) will see a modest increase (up to 4.9%) in their PLFs until the Expected Interest Rate reaches 5.37% and higher.
- Older borrowers (ages 78 – 90) will see a substantial increase (up to 13.0%) in proceeds until the Expected Interest Rate is 7.0% and higher.
- The new Principal Limit Factors go into effect for FHA case numbers assigned on or after August 4th, 2014.
- Borrowers who have not closed their loans and have FHA case numbers prior to August 4th may opt to use the new PLFs.
- The table for younger non-borrowing spouses (18-61 years old) only applies if at least one borrower meets the minimum HECM age requirement of 62. Proceeds will be based on the age of the youngest spouse.
Please feel free to share this information with your family members who may be considering a reverse mortgage. These changes could be beneficial to them. We would be happy to meet with them to discuss how these changes may impact their own personal situation. Please call RoseMarie at 310-374-3436 x316 for information.
The Department of Housing and Urban Development is making more proceeds available for some reverse mortgage borrowers, under new principal limit factors (PLFs) released June 23, 2014.