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Reverse Mortgage Maximum Claim Amount - MyHECM.com - The Straight Deal on the HECM Reverse Mortgage From An Industry Expert
Reverse Mortgage Glossary

Maximum Claim Amount

Reverse Mortgage Maximum Claim AmountThe reverse mortgage maximum claim amount (MCA) is the maximum dollar amount FHA insures for a HECM reverse mortgage. MCA is equal to either the appraised value of the home or the FHA lending limit, whichever is less.

For example, if the value of the home is $300,000, the maximum claim amount equals $300,000. If the home value exceeds the FHA lending limit, then the maximum claim amount equals the lending limit.

How reverse mortgage maximum claim amount impacts proceeds

The maximum claim amount is the starting point for determining the proceeds available from a reverse mortgage. Borrowers qualify for a certain percentage of the maximum claim amount. The percentage is calculated by using a principal limit factor published by FHA and selected based on the age of the youngest borrower (non-borrowing spouse) and the current expected interest rate (EIR).

Example #1: Home value is less than the lending limit

For example, let’s assume the appraised value of the home is $300,000. Because the value is below the lending limit, the MCA equals $300,000 as well. Let’s also assume the expected interest rate (EIR) is 4.50% and the age of the youngest borrower is 70.

Using our principal limit calculator, we discover that the principal limit factor as of this writing for an EIR of 4.50% and an age of 70 is 0.493, or 49.3%. We multiply 49.3% by the maximum claim amount and arrive at a principal limit (PL) of $147,900. The PL is the initial pool of cash available to pay off existing mortgage balances, cover closing costs, and be paid out to the borrower.

Example #2: Home value is more than the lending limit

Now let’s assume the appraised value of the home is $1,500,000. Because the value is more than the lending limit, the MCA equals the lending limit, which at the time of publishing is $726,525. Let’s again assume the expected interest rate is 4.50% and the age of the youngest borrower is 70.

We already know from the example above that the principal limit factor for an EIR of 4.50% and an age of 70 is 0.493, or 49.3%. We multiply 49.3% by the maximum claim amount and arrive at an initial principal limit of $358,177.

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