source:
  type: guide
  id: hud-4000-1-ii-d-principal-limit
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Principal
    Limit (04/29/2024)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Principal
    Limit (04/29/2024).
  coverage_tier: operative
obligations:
- id: hud-4000-1-ii-d-principal-limit-full
  canonical_id: hud-4000-1-ii-d-principal-limit-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Principal
    Limit (04/29/2024)
  type: do
  tags:
  - regulator-direct
  - fha
  - hud-handbook
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Principal
      Limit (04/29/2024)
    source_class: hud-handbook
    source_url: https://www.hud.gov/hud-partners/single-family-handbook-4000-1
    snapshot_id: 8c03836f77f317e1
    fetched_at: '2026-05-23T00:28:40Z'
    content_hash: sha256:411430f29b13f9b54a2ebb0e6f6e7087ecd2b90d0da22eb0c8c792eaa2d7d0df
    paragraph_quote: '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.'
  judgment: false
