###### Reverse Mortgage Glossary

# Principal Limit (PL)

The principal limit, or PL, is the total amount of proceeds available to a HECM reverse mortgage borrower.

The principal limit is determined by multiplying the maximum claim amount (the home value for most borrowers) by a principal limit factor (PL factor) published in FHA’s principal limit factor tables.

The lender determines the PL factor to use based on the age of the youngest borrower (or non borrowing spouse) and the current expected interest rate.

To see how this works, let’s check out an example. Let’s assume that, based on the expected interest rate and borrower’s age, that we are to use a PL factor of 0.50.

Let’s also assume the borrower’s home value is $300,000, which would be the maximum claim amount.

To determine the principal limit, we simply multiply the maximum claim amount by the PL factor (0.50 * $300,000), which gives us a principal limit of $150,000.

The money in the principal limit is used to pay off existing mortgage balances, closing costs, and any property charges due.

The remaining money can be allocated to the borrower in the form of term or tenure payments, lump sum, and line credit.