Reverse Mortgage Glossary

Principal Limit (PL)

The principal limit is the total amount of proceeds initially available to a reverse mortgage borrower. The principal limit is determined by multiplying a principal limit factor, or PL factor, by the maximum claim amount (equal to the appraised value for most borrowers).

As an example, let’s assume the maximum claim amount is $300,000 and the PL factor is 0.50 based on the youngest borrower’s age and the expected interest rate (EIR). The PL factor is multiplied by the maximum claim amount to arrive at an initial proceeds amount of $150,000 (0.50 * $300,000), which is the principal limit. These proceeds would then be divvied up to cover existing mortgage balances, closing costs, required property charges, and any allocations to the borrower in the form of cash or line of credit.

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