Principal Limit
The maximum amount of HECM loan proceeds available to a borrower, calculated from age, expected interest rate, and home value.
The principal limit is the total amount a borrower may potentially access through a HECM reverse mortgage. It is calculated using the age of the youngest borrower (or eligible non-borrowing spouse), the expected interest rate at origination, and the lesser of the appraised home value or the FHA HECM lending limit for that year.
Not all of the principal limit is available as immediate cash. Closing costs, the initial mortgage insurance premium, any existing mortgage payoff, and other mandatory obligations are deducted first. The remainder is available as a lump sum, line of credit, monthly advances, or a combination depending on the product.
On adjustable-rate HECMs, any unused portion of the principal limit available in a line of credit may grow over time at a rate tied to the loan's interest rate. This is not interest earned by the borrower — it is increased borrowing capacity within the loan structure.
Related terms
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