What Is a Rev🎉erse🐭 Mortgage Initial Principal Limit?

A rev♍erse mortgage initial principal limit is the amount of money that a reverse mortgage borrower can receive from the loan. The initial principal limit depends on the borrower’s age at the time of application, the loan’s interest rate, and the home’s appraised value.

Understanding Rev🐻erse Mortgage Initial Principal Limits

If you own your own home and are at least 62 years of age, a reverse mortgage provides an opportunity to convert your 澳洲幸运5官方开奖结果体彩网:home equity into cash. In the most basic terms, 澳洲幸运5官方开奖结果体彩网:a reverse mortgage allows you to take out a loan against the equity in your home, but you don’t have to repay the loan during your lifetime as long as you are living in the home and have not sold it. If you want to increase the amount of money available to fund your retirement but don’t like the idea of making payments on a loan, a reverse mortgage is an option worth considering.

A reverse mortgage initial 澳洲幸运5官方开奖结果体彩网:principal is the amount of money that a reverse mortgage borrower can receive from the loan. This limit typically will be significantly less than the home’s 澳洲幸运5官方开奖结果体彩网:appraised value.

For example, a borrower with a $300,000 house might have an initial principal limit of $200,000. The $100,000 difference accounts for the interest that will accrue on the reverse mortgage over the years. We’ll assume this homeowner owns their home free and clear, so they’re not using part of the reverse mortgage proceeds to pay off a first mortgage. The homeowner would be able to access a maximum of 60% of the $200,000 initial principal limit, or $120,000, in the first year of the reverse mortgage.

Regardless of which reverse mortgage payment plan a borrower selects, a 2013 regulation limits the maximum disbursement to 60% the amount of the initial principal that borrowers can receive as reverse mortgage proceeds in the first year of the loan.

Special Considerations

Suppose the homeowner from the example above chooses a lump-sum payment plan, which has a 澳洲幸运5官方开奖结果体彩网:fixed interest rate but only allows a single up-front withdrawal. In that case, they will not be able to access the remaining $80,000 of their initial principal limit in later years. An exception is if they changed their reverse mortgage payment plan, which would mean switching to a 澳洲幸运5官方开奖结果体彩网:variable interest rate.

On the plus side of the lump-sum option, the homeowner will have more home equity since they will not use it all up with the reverse mortgage. Instead of a lump sum, the borrower can also receive fixed and equal monthly payments via a 澳洲幸运5官方开奖结果体彩网:tenure payment plan.

Alternatively, if the borrower chooses a 澳洲幸运5官方开奖结果体彩网:line of credit payment plan, they can withdraw up to $120,000 in the first year. The 澳洲幸运5官方开奖结果体彩网:interest rate will be variable, but they can access the remaining $80,000 of their initial principal limit in later years. In fact, the accessible amount will increase a little bit each month because of this payment plan’s growth feature. 

The Bottom Line

A reverse mortgage initial principal limit is the total amount a borrower ꦆcan access on their reverse mortgage. It can 🦹be paid as part of a lump sum, as ongoing payments, as a line of credit, or as a combination of the three, depending on the reverse mortgage terms.

The limit is lower than the amount of equity a borrower has in their home, and borrowers cannot access all of their initial principal at once due to regulations set by the United States 澳洲幸运5官方开奖结果体彩网:Department of Housing and Urba♛n Dജevelopment (HUD).