What to Know About the 2023 HECM Reverse Mortgage Lending Limit Increase
Home Equity Conversion Mortgages (HECMs) are a great way for senior homeowners over the age of 65 to access their home’s equity. An HECM type of mortgage is also commonly referred to as a "reverse mortgage."
This means they can now access more funds that can be used for home repairs, medical bills, or other necessary expenses.
In 2023, the Federal Housing Administration (FHA), which insures HECMs, has increased its lending limit from $970,800 (in 2021) to $1,089,300.
That’s a 12.2% increase and a huge benefit for homeowners who are looking to use their home equity to help them retire comfortably.
Let’s take a look at what this means and how it will affect you as a homeowner looking to retire.
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What is a Reverse Mortgage?
A reverse mortgage allows seniors to borrow money against the value of their home and receive either a lump sum payment, monthly payments, or both. The loan does not need to be paid back until the borrower dies or moves out permanently. As long as the borrower remains in their home and keeps up with taxes and insurance, no further payments are due on the loan until it's time for repayment. The loan amount can never exceed the value of your home plus accrued interest and fees.
For the First Time Ever, HECM Limit Reaches $1M+
So now, in 2023, the new limit will be $1,089,300. This is an increase of $118,500! This increase is determined by the FHA based on home prices for the preceding year.
Borrowers facing substantial mortgages can now retire with greater ease, thanks to increased lending limits. With sharply rising interest rates threatening the security of their principal limit, these new limitations could make all the difference in a comfortable retirement for many.
Benefits of the Increase in Loan Limits
The increase in loan limit is beneficial because it allows senior borrowers to access more funds from their home equity than they could before. This can be especially helpful if you are looking to pay off debt or make renovations that require extra money.
The 2023 limit increase gives borrowers with properties valued more than $1,250,000 a viable option to proprietary or jumbo reverse mortgage options.
Additionally, with higher limits come better interest rates — another benefit for those looking to secure an HECM loan. Finally, with higher limits comes an opportunity to access more of the property’s value when considering a reverse mortgage loan.
Impact of Higher Limits on Borrowers and Lenders
The increase in loan limit will have a positive impact on both borrowers and lenders.
For borrowers, it means access to more funds from their home equity without having to worry about paying additional taxes due to borrowing more than the previous loan limit amount allowed.
It’s also important to note that the new loan limits only apply to loans taken out on or after January 1, 2023. If you already have a reverse mortgage in place prior to this date, your current loan balance cannot exceed the existing $970,800 cap.
For lenders, it provides them with greater opportunities for customers as well as safer investments since these loans are backed by the FHA insurance program. The lower risk associated with these mortgages also makes them attractive investments for investors who may be seeking higher returns without taking on too much risk.
What Should Potential Borrowers Do?
If you're considering taking out a reverse mortgage in 2023—or even earlier—it's important that you do your research and speak with multiple lenders before making any decisions. Each lender has different requirements when it comes to credit scores and other qualifications; make sure you understand what these are before committing to anything.
It's also important that you read through all of the paperwork carefully so that there are no surprises down the line. And finally, make sure you thoroughly understand how interest rates and repayment plans work so that you know exactly what kind of financial obligations you'll have once your loan is finalized.
The increase in loan limits for HECM reverse mortgages can provide significant benefits for senior homeowners over the age of 65 who are looking to access their home’s equity while avoiding additional taxes due to borrowing over the previous loan limit amount allowed.
This change is sure to help many seniors achieve their financial goals in 2023 and beyond!
Although this could mean greater access to funds for those who qualify, it's important to do your research beforehand so that there are no surprises down the line. Senior homeowners should consider speaking with multiple lenders about their qualifications and options so that they can make an informed decision about whether or not a HECM makes sense for them financially.
If you're not sure, you may want to talk to a loan specialist at Simple Reverse Mortgage to see if it's right for you.
Fill out our Reverse Mortgage Calculator and Proposal form, and one of our knowledgeable specialists will be in touch shortly to answer any questions and see how much you could qualify for.
2023 HECM limit details were published in Mortgagee Letter 2022-21