FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Principal Limit (04/29/2024)

FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Principal Limit (04/29/2024)

d. Principal Limit (04/29/2024) i. Definitions Principal Limit refers to the maximum amount of proceeds that a Borrower may receive from the HECM before any Disbursements are made, taking into account the age of the youngest Borrower or Eligible NBS, the Expected Rate, and the MCA. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 3. Allowable Mortgage Parameters Handbook 4000.1 593 Last Revised: 11/26/2025 Principal Limit Factor refers to a multiplier supplied by FHA used to calculate the initial Principal Limit and is available on the HUD website. Expected Average Mortgage Interest Rate (Expected Rate) refers to the interest rate used to calculate the Principal Limit at closing. Mortgagee’s Margin refers to the amount that is determined by the Mortgagee and is added to the index value to compute the Expected Rate and is the same margin used to determine the initial mortgage interest rate (Note rate) and the periodic adjustments to the Note rate. Index Type refers to the interest rate index used to calculate the Expected Rate. ii. Standard The Mortgagee is responsible for calculating the Principal Limit to determine the amount of HECM proceeds that will be available to the Borrower. The Principal Limit is calculated by multiplying the MCA by the Principal Limit Factor. The Principal Limit for a fixed rate HECM will increase each month by one-twelfth of the sum of the Note interest rate, plus the annual mortgage insurance rate, but no further HECM proceeds may be made available to the Borrower to draw against after the Borrower’s Advance. The Principal Limit for an adjustable rate HECM will increase each month by one- twelfth of the sum of the Note interest rate, plus the annual mortgage insurance rate. The Mortgagee must ensure the Borrower is given an analysis of the cost of a HECM versus the benefits of the HECM in order to make an informed decision pertaining to whether a HECM would meet their individual needs. iii. Principal Limit Factor The Mortgagee must determine the appropriate Principal Limit Factor based on the age of the youngest Borrower or Eligible NBS and the Expected Rate. The Mortgagee must use the Principal Limit Factor based on the age of the youngest Borrower or Eligible NBS, rounded up to the nearest whole year if the next birthday is less than 183 Days after closing. The Mortgagee must also calculate the Principal Limit using the Principal Limit Factor based on the age of the youngest Ineligible NBS solely for the purpose of disclosing the amount of Principal Limit that would have been available under the HECM if they were an Eligible NBS. The Mortgagee must advise prospective Borrowers and NBSs to discuss with the HECM counselor whether Principal Limit Factors below 20 percent may improve their financial II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 3. Allowable Mortgage Parameters Handbook 4000.1 594 Last Revised: 11/26/2025 situation, or meet any special needs, and that, given the costs of obtaining the HECM, they should give significant consideration to its potential benefits. The Mortgagee must use the HECM Principal Limit Factor Tables. iv. Expected Rate For fixed rate HECMs, the Expected Rate is the same as the Note rate and is set simultaneously with the Note rate. See Establishing the Note Rate for additional guidance. For adjustable rate HECMs, the Expected Rate is the sum of the mortgagee’s margin plus the weekly average yield for U.S. Treasury securities adjusted to a constant maturity of 10 years (10-year CMT index) and published in the Federal Reserve Board Statistical Release H.15. v. Expected Rate and Mortgagee’s Margin Lock In (A) Optional Expected Rate Lock-In Agreement Mortgagees, with the agreement of the Borrower, may simultaneously lock in the Expected Rate and the mortgagee’s margin, if applicable, at any time between initial application and the date of closing. The lock-in period starts on the day that the FHA case number is assigned for a period of up to 120 Days. When the Expected Rate and mortgagee’s margin are not simultaneously locked in, the Expected Rate and mortgagee’s margin will be set at closing. If the Expected Rate lock-in agreement includes a float down option, the Principal Limit may be recalculated at closing if the Expected Rate in effect on the date of closing is now lower than the stated Expected Rate in the lock-in agreement. Mortgagees are not permitted to charge a fee for the lock-in rate or the float down option. (B) Expected Rate Lock-In Extension If the initial Expected Rate lock-in agreement has expired, the Mortgagee may extend the previous lock-in period up to an additional 120 Days, with the agreement of the Borrower. If the initial Expected Rate lock-in agreement has expired and the Mortgagee has not extended the previous lock-in period, the Expected Rate and mortgagee’s margin will be set at closing. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 3. Allowable Mortgage Parameters Handbook 4000.1 595 Last Revised: 11/26/2025 (C) Case Number Transfer and Expected Rate Lock-In When a case number is transferred to a new Mortgagee, the Expected Rate and mortgagee’s margin, if applicable, may be locked in by the new Mortgagee with the agreement of the Borrower for a period of up to 120 Days.

Source: FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Principal Limit (04/29/2024) · source URL · snapshot 8c03836f77f317e1