HECM Reverse Mortgages - How Much Money Can You Get?

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HECM Reverse Mortgages - How Much Money Can You Get?
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By Peter Boston

With reverse mortgages, everyday terms related to loans and loan amounts can mean very different things than what you might expect. It is important then to precisely define these terms as they are used for reverse mortgages.

Principal limit or maximum principal limit is the total aggregate amount of money that will ever be available over the life of the reverse mortgage. Whether the money is paid to the borrower monthly, in a lump sum, or from time to time, when you count every dollar paid from the loan it cannot add up to more than the principal limit.

Think of the principal limit as a can of flour. All the flour you are ever going to get goes into that can at the loan closing. However, you will only be charged for the flour that gets removed from the can.

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The loan balance is the actual amount of money that is charged to the loan by cash advances to the borrower, plus accrued interest on the disbursed cash, plus fees. You can see right away that part of the principal limit is going to be eaten up in accrued interest and fees. The actual amount of cash that the borrower can get over the life of the reverse mortgage will always be something less than the principal limit.

The loan balance is the flour that gets scooped out of the can. There

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