Reverse Mortgage Glossary
The age of the youngest borrower or non-borrowing spouse plays an important role in determining how much you can get from a HECM reverse mortgage. The lender uses your age and the expected interest rate (EIR) to determine the applicable principal limit factor (PL factor). The PL factor is then multiplied by the maximum claim amount (equal to the appraised value for most people) to determine the principal limit, or PL. The PL is the initial proceeds available through the reverse mortgage that can be used to pay off mortgages, other debts, or allocated to term or tenure income, lump sum, and line of credit.
Older borrowers tend to qualify for larger principal limits than younger borrowers. To see how this works, let’s take a look at an example. Let’s assume we’re comparing two borrowers, a 65-year old and an 85-year old, and both have free and clear homes worth $250,000.
Using our basic PL calculator, we get the following principal limits (using the PL tables in effect as of June 2019):
- 65-year old: $107,500
- 85-year old: $147,750
As you can see, the 85-year old qualifies for about $40,000 more than the 65-year old in this scenario.