2013 Reverse Mortgage Loan Limit Extension

By Daniel Duffield

On December 6, 2012, the Department of Housing and Urban Development (HUD) released an extension of the reverse mortgage loan limit for the Home Equity Conversion Mortgage (HECM), the most common and safe reverse mortgage product available. Previously set to expire, this limit will remain at $625,500, rather than returning to the former limit of $417,000. With new this extension, the lending limit will remain active until December 31, 2013.

Essentially, this extension will benefit borrowers with homes valued above $417,000, who will be able to tap into a greater portion of their equity and to acquire more funds through their reverse mortgages. Since reverse mortgage eligibility can be contingent on the value of the home or the HUD maximum limits for reverse mortgages, borrowers living in homes with higher values than their local limits can benefit tremendously from this extension.

Following the mortgage market collapse, including the near complete extinction of jumbo reverse mortgages, also known as proprietary reverse mortgages, a vast majority of borrowers have acquired the HUD HECM reverse mortgage.

With current regulations in place, borrowers with exceptionally high home values will not receive more funding than borrowers with properties valued at the limit of $625,500. Basically, the federal government initiated this increased loan limit as a section of the American Recovery and Reinvestment Act of 2009, and consequently, reverse mortgage borrowers have access to greater amounts of funds for expenses such as medical bills, college tuition for grandchildren, etc.

For instance, a 70 year old borrower who owns a property valued at $650,000 would be able to acquire a reverse mortgage loan with a principal limit of $414,706. However, the same borrower would be able to obtain the same amount of funding with a property valued at $625,500 or even $1,500,000. Essentially, this constitutes the maximum benefit as assessed by the HUD Lending limit and greatly exceeds the limit under the previous guidelines, with borrowers only able to withdraw $276,471. With a difference of $138,235, borrowers will be able to acquire approximately a third more than previously obtainable.

Although not as beneficial for borrowers with properties valued between $417,000 and under $625,000, borrowers with homes within this range can still obtain additional funding. Moreover, this higher reverse mortgage loan limit increases eligibility for many borrowers, making this extension beneficial for all potential HECM borrowers with high-valued properties.

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