How Does the Reverse Mortgage Principal Limit Work?

How Does the Reverse Mortgage Principal Limit Work? The principal limit is the total reverse mortgage proceeds available before mandatory obligations are paid. Mandatory obligations include existing mortgages, closing costs, and property charges due at closing. The remaining money is the net principal limit which you can take as a lump sum, line of credit, or monthly term or tenure plan. To calculate the principal limit, we need to first determine the maximum claim amount. The maximum claim amount equals the lesser of your home's value or the FHA lending limit. Most homes are valued less than the lending limit (which is $970,800 for 2022) so the maximum claim amount usually equals the home value. Next, a principal limit factor is obtained from tables published by FHA. The principal limit factor is selected based on your age and current interest rates. The maximum claim amount and the principal limit factor are multiplied together to calculate the principal limit. Feeling a bit lost? Not to worry!