HECM principal limit factor tables are published by FHA and used by the reverse mortgage industry to calculate HECM reverse mortgage proceeds.
The tables contain lists of principal limit factors that are used to calculate the principal limit (PL). The principal limit is the percentage of the maximum claim amount (the appraised value for most people) the lender is allowed to lend based on age and the current expected interest rate.
How principal limit factors are used
Before we can calculate the total pool of cash available through a HECM, we have to first establish the maximum claim amount. The maximum claim amount is equal to the appraised value of the home or the FHA HECM lending limit, whichever is less.
As an example, let’s assume we’re working with a home value of $300,000. This is less than the lending limit, so the maximum claim amount is $300,000 as well. Let’s also assume we’re working with a borrower who is 70-years old and the expected interest rate is 5%. Using these variables, we look up the appropriate PL factor in the tables and determine it to be 0.465.
To calculate the principal limit, we simply multiply the maximum claim amount by the PL factor:
$300,000 (maximum claim amount) * 0.465 (PL factor) = $139,500 (principal limit)
As you can see the principal limit works out to be $139,500 in this example. This is the total pool of cash available to the borrower at closing to pay off existing mortgages, supplement income or retirement assets, pay closing costs, allocate to term/tenure income, line of credit, etc.
Where to find the HECM principal limit factor tables
The FHA principal limit factor tables are available on the HUD website at the links below. For case numbers issued:
You’ll need to have Microsoft Excel (or a compatible program) installed to open the tables.
A easier way to calculate PL
Are you interested in a far easier way to calculate principal limits? We’ve already done the work for you! You can easily calculate principal limits for various home values, ages, and expected interest rates using our principal limit calculator.