2021 Reverse Mortgage Lending Limits Increase: More Money for Some Borrowers
The maximum reverse mortgage lending limit is increasing for 2021, allowing retirees with substantial home equity to get more money than was available in previous years.
Reverse mortgage lending limits raised to an all time high.
A reverse mortgage enables homeowners age 62 and older to access their home equity in the form of a loan. Unlike a traditional “forward” mortgage, reverse mortgages do not require monthly payments toward the loan balance. As you tap into your home equity, the loan balance grows. Borrowers are not required to repay the loan balance until they sell the home or move out.
Each year, the Federal Housing Administration (FHA) sets the lending limits on FHA loans, including the Home Equity Conversion Mortgages (HECM). HECMs are the most common and popular type of reverse mortgage. The reverse mortgage limits are based on the median home prices for a particular area, usually being set at or between an area’s low- and high-cost limits.
At the end of 2020, the FHA announced it would increase HECM reverse mortgage lending limits to an all time high of $822,375.
This is good — even great — news for many potential borrowers.
How Lending Limits Impact Your Reverse Mortgage Payouts
The “net principal limit” is one of the factors used to determine how much you are able to receive from the HECM reverse mortgage at closing after all fees and other costs have been paid. The loan amount is determined by the appraised value of your home or the net principal limit of $822,375 — whichever is less. (If your estimated home value is greater than this amount, then you may also want to look into “Jumbo” proprietary loan options)
Interest rates, your age and spouse’s age (if you are married) are also considered in determining how much you may be able to receive. Use a reverse mortgage calculator to estimate your own loan amount.
For retirees with homes valued within the FHA lending limit, the decision to increase loan limits allows homeowners to receive significantly more money from a HECM reverse mortgage than in the past.
During the Great Recession on February 17, 2009, the federal government passed The American Recovery and Reinvestment Act of 2009. This legislation, which was commonly referred to as the “Stimulus Bill” or “The Recovery Act,” raised the FHA loan limit for HECM reverse mortgages from $417,000 to $625,500.
Though this increase was initially intended to only last through 2009, Congress has continuously extended it year after year to the $822,375 level that stands today. This ongoing support for the extension is thought to be a sign of Congress’ continued recognition of the many benefits reverse mortgages can provide to retirees.
Over the past few years, Congress has passed legislation designed to improve these benefits and create safeguards to further enhance borrowers’ abilities to draw on housing wealth during retirement.