How To Calculate Reverse Mortgage

In 2023, the Department of Housing and Urban Development (HUD) will make program adjustments that will result in the reverse mortgage lending limit for Home Equity Conversion Mortgages exceeding $1 million for the first time ever. The maximum loan amount for HECMs that the Federal Housing Administration will insure in 2023 will be $1,089,300, an increase of more than $118,000 from the loan maximum of $970,800 in 2022.

The HUD lending limit changes annually to reflect the state of the housing market and shifts in the market’s average home price. The lending limit will increase in 2023 to give reverse mortgage borrowers more borrowing options due to national increases in home prices.

The Federal Housing Finance Agency’s (FHFA) conforming lending limits are typically in line with the HUD lending limit for loans that are acquired by Fannie Mae and Freddie Mac. The HECM lending limit is uniform across the country and typically reflects the FHFA’s lending limit for higher-than-average markets, in contrast to the FHFA’s forward mortgage lending limits, which are set geographically and depend on local market home price averages. This means that regardless of where the borrower resides in the United States, the loan limit for HECM reverse mortgages is the same. S.

In recent years, home prices have risen consistently. According to the Federal Reserve Bank of St. Louis, median home price of home sold in the U. S. was $313,000 in 2019. In 2020, that figure rose to $329,000. In 2021, during the pandemic, that median reached $369,800. The median was also higher by the first quarter of 2022, reaching $433,100. The FHFA and HUD have historically set lending limits that have followed this pattern.

Historical Lending Limits on Reverse Mortgages

Back in the day, reverse mortgage lending limits did vary geographically to reflect typical regional home values. That changed in 2008 when the national HECM lending cap was set for the first time at $417,000. The Housing and Economic Recovery Act (HERA) caused a significant increase in the ceiling the following year, raising it to $625,500.

For a number of years, the cap stayed at $625,500 before finally rising to $636,150 in 2017. The lending limit increased again for each subsequent year, reaching $726,525 in 2019, $756,600 in 2020, $822,375 in 2021, and finally $970,800 in 2022. The historic increase to more than $1 million in 2023 gives senior homeowners with expensive homes even more borrowing power.

HECM Reverse Mortgage Limits History (2008-2023)

Year HECM Lending Limit
2008 $417,000
2009-2016 $625,500
2017 $636,150
2018 $679,650
2019 $726,525
2020 $765,600
2021 $822,375
2022 $970,800
2023 $1,089,300

What purpose do lending limits serve?

Governmental agencies and private lenders set lending limits to determine the maximum amount that may be borrowed in a single loan. This primarily serves to prevent the lender or loan insurer from issuing loans that exceed a certain threshold.

The lending limit in the case of HUD’s reverse mortgage lending limits is essentially the maximum amount that a borrower may borrow against his or her property. The loan amount for reverse mortgages is determined by a number of variables, as usual:

  • The home value
  • The interest rate
  • The age of the youngest borrower
  • The age of the borrower and the value of the home have a significant impact on the amount that borrowers can qualify for using a reverse mortgage. An additional restriction on how much can be borrowed is the loan limit. There will be equity “left on the table” if a borrower’s home is valued significantly higher than the lending cap, which can effectively prevent them from taking out a HECM loan.

    There are numerous private reverse mortgages available on the market in those circumstances, and their loan limits exceed the HUD lending cap. These products may offer greater borrowing capacity, in some cases allowing loan limits to exceed $2 million. However, they may have different terms from HECM loans, taking into account different upfront and ongoing costs, interest rates, borrower requirements, and the amount of home equity that can be borrowed.

    Expanded borrowing potential in 2023

    The new HUD lending cap will give some borrowers more borrowing capacity for loans in 2023. The new loan limit might make it easier for borrowers to access more of their home equity in the coming year for those who might be considering reverse mortgage options.

    Some private reverse mortgages may become less competitive as a result of the increase in the HECM lending limit and its capacity to provide HECM borrowers with greater borrowing potential. It’s important to discuss the various products available with a seasoned loan originator to determine which offers the best fit for each unique situation.

    HUD has occasionally changed the lending limit as a result of legislation, but most of the time, the lending limit is changed solely as a result of changes in the median home price. Because of the pandemic’s unprecedented home price growth in many markets, the loan limit increased by 18% in 2022. However, based on typical home prices, the loan limit may also decrease. The borrowing capacity for HECM loans is reduced if the loan limit decreases. Even though nobody can predict how home prices will develop in the future, there may be benefits to getting a reverse mortgage before the lending cap of 2023.


    How is the amount of a reverse mortgage calculated?

    Age of the youngest homeowner or non-borrowing spouse determines how much a person can receive from a reverse mortgage. The value of the home. The expected interest rate.

    How are monthly payments calculated on a reverse mortgage?

    The interest rate and proposed loan term of the lender determine the subsequent monthly payment. The 240 payments over the 20-year term (20 x 12 months = 240 payments) The number of years between the youngest borrower and 100 is known as the life term. For example, 100 – 66 = 34-year term payment.

    How much can I expect to get from a reverse mortgage?

    One of the main determinants of how much you can borrow through a reverse mortgage is the value of your home. In general, you can typically receive between 40% and 60% of the appraised value of your home. And the more money you may be able to access, the more valuable your home is.

    What is the formula for calculating the origination fee on a reverse mortgage?

    Origination fees are calculated as follows: 2% of the property’s value up to $200,000, and 1% of the amount above that. A maximum of a $6,000 origination fee. If the appraised value of your home is less than $125,000, a lender may impose a HECM origination fee of up to $2,500.