A reverse mortgage principal limit factor, or PL factor, helps determine the proceeds available from a HECM reverse mortgage. PL factors are used to calculate the principal limit, which is the gross pool of cash available before mandatory obligations are paid.
How PL factors are used
Principal limit factors are percentage values published in tables by the Federal Housing Administration (FHA) for purposes of calculating HECM proceeds.
The appropriate principal limit factor is selected by the lender based on the age of the youngest borrower (or non-borrowing spouse) and the expected interest rate (EIR). The appropriate PL factor is then multiplied by the maximum claim amount (usually equal to the value of the home) to determine the principal limit.
As an example, let’s assume the maximum claim amount is $300,000 and the appropriate PL factor 0.50. To calculate the principal limit, we simply multiply the PL factor by the maximum claim amount:
$300,000 (maximum claim amount) * 0.50 (PL factor) = $150,000 (principal limit)
As you can see, the principal limit in this example works out to be $150,000. This is the total pool of cash available to pay mandatory obligations such as existing mortgage balances, closing costs, property charges due at closing, set-asides, etc. The remaining portion of the principal limit is available for allocation to lump sum, line of credit, term income/tenure income, or some combination of these options.
Principal limit factors tend to increase with age. This means that older borrowers tend to qualify for more money than younger borrowers.
PL factors also tend to increase as the expected interest rate decreases. This means that the HECM tends to offer more money when interest rates are relatively low.
Where to find the reverse mortgage 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.