Does ML 17-12 change how the HECM principal limit is determined?

No. Lenders will continue to determine the principal limit according to existing policy guidelines by multiplying the maximum claim amount by the principal limit factor corresponding to the age of the youngest borrower, or the age of the younger Non-Borrowing Spouse, and the expected average mortgage interest rate, until further notice. The expected average mortgage interest rate must be the same as the fixed mortgage (note) interest rate and set simultaneously.

The principal limit for a fixed interest rate mortgage will “increase” each month by one-twelfth of the sum of the mortgage note interest rate plus the annual mortgage insurance rate, but no further funds may be made available for the borrower to draw against after the initial lump sum disbursement.

Future disbursements from set-aside accounts can be made by the lender for purposes defined for the specific set-aside.

Lenders may continue to add accrued interest, mortgage insurance premiums, servicing charges and disbursements from set-aside accounts to the outstanding mortgage balance for fixed interest rate HECMs in accordance with existing FHA requirements.

All other HECM program requirements remain applicable to fixed interest rate mortgages.

For more detailed information see Mortgagee Letters (ML) 14-11 & 17-12 at

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-02426