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Reverse Mortgage Glossary

Principal Limit Factor, PL Factor

The principal limit factor, or PL factor, is a percentage value multiplied by the maximum claim amount (equal to appraised value for most reverse mortgage borrowers) to determine the initial amount of proceeds available to a reverse mortgage borrower.

The PL factor can vary depending on the age of the youngest borrower and the expected interest rate (EIR). FHA publishes a table of PL factors for various age and EIR combinations.

PL factors tend to increase with age, which means that older borrowers tend to qualify for more money than younger borrowers. PL factors also increase as EIR decreases, which means that borrowers tend to qualify for more money when prevailing interest rates drop significantly.

As an example, let’s assume the maximum claim amount is $300,000 and the PL factor 0.50 based on the youngest borrower’s age and the 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 called 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.