The reverse mortgage first-year disbursement limit is the greater of 60% of principal limit or mandatory obligations plus 10% of principal limit, and it cannot exceed the principal limit, under 24 CFR 206.25 and the disbursement section of Mortgagee Letter 2014-21. Jay Zayer, CRMP, is a reverse mortgage specialist at reversemortgage.coach. Mortgagee Letter 2017-12 superseded only the MIP structure of 2014-21. It did not repeal this draw cap. Staying under 60% does not restore the revoked 0.50% initial MIP.
Take a homeowner like Uri, 71, occupying a house in Goodyear, Arizona, who wanted a large line draw on day 30 because “MIP is already 2%.” Initial MIP is already 2.00% of claim amount. The draw cap is a different rule. See upfront FHA MIP for the insurance premium. Stay here for what you may actually take in year one.
A HECM remains FHA-insured. The 60% rule is not a public bonus for waiting.
What is the 24 CFR 206.25 greater-of test, in the order I run it?
Compute 60% of principal limit. Compute mandatory obligations plus 10% of principal limit. The larger number is the first-year cap, never above the principal limit. Mandatory obligations include liens the HECM must pay, initial MIP, origination, and similar required items. A LESA funded at origination is part of that origination picture. Jay confirmed a LESA cannot be added later to manufacture extra first-year room.
Uri’s leftover cash still lands in a mid-30s to low-50s percent of appraised value, depending on age and expected rate. Run the leftover-cash worksheet, then apply the first-year cap to the draw, not to leftover cash as a slogan. Do not interpolate HUD rows.
Counseling still costs $125–$175. The HUD certificate lasts 180 days. Arizona has no Civil Code 1923.2(k) seven-day hold; California files still do. Neither hold is a first-year draw.
How do mandatory obligations actually push a file above 60% without breaking the rule?
A $200,000 first-mortgage payoff on a principal limit that is not much larger will force first-year disbursements above 60%. That is the greater-of test working. It is not a loophole I invent. It still cannot exceed the principal limit. Initial MIP remains 2.00% of maximum claim amount — $15,000 on a $750,000 value, $24,982.50 at the $1,249,125 cap in Mortgagee Letter 2025-22. Origination remains capped at $6,000 under 24 CFR 206.31.
A second geography: a 66-year-old in Morro Bay whose California house is paid off and who wanted 80% of leftover cash on day one as a check. Paid-off files often feel the 60% cap more. Tenure or a later line draw is the honest structure.
Annual MIP of 0.50% of outstanding balance still accrues on whatever you did draw. Unused line may grow. Growth is not a first-year extra check.
On a complete HECM refinance I still use about 30 days as the average close I quote — not as a date when the 60% cap lifts. The cap lifts after the first year of the loan, not after my processing average.
What happens after year one, and what does not?
The first-year disbursement limit lifts. Unused line remains available if occupancy under 24 CFR 206.39 still holds and servicing agrees. You do not get a new principal limit. You do not get a MIP refund. An adjustable HECM still accrues at 1-month CMT plus lender margin. Uri’s expected rate was already rounded to 0.125% under 24 CFR 206.3 when the loan sized.
If Uri’s heirs later keep the Goodyear house, 24 CFR 206.125(a)(2)(i) still names the outstanding balance. First-year draws already taken sit in that balance. Unused first-year room that was never drawn is not inherited cash. See line of credit after death.
How do repairs and a LESA interact with the greater-of test?
Repair set-asides under 24 CFR 206.47 and a LESA funded at origination sit inside the origination picture that 24 CFR 206.25 has to respect. They can push first-year disbursements up as mandatory items. They do not restore revoked 0.50% MIP. Uri cannot add a LESA later to manufacture extra first-year room. Jay confirmed that.
A paid-off Goodyear house with a large leftover line often feels the 60% cap more than a house that must pay off a $200,000 first. That is the greater-of test, not a punishment. After year one, unused line is available if occupancy still holds. Month thirteen is not a MIP refund. It is the calendar when the draw cap lifts.
Who should not treat 60% as MIP savings on a 2016 flyer?
This path does not help a household that wanted the revoked 0.50%/2.50% MIP split as a draw strategy. Occupancy is still 24 CFR 206.39. I work with multiple lenders. I will originate when leftover cash after 2.00% of claim amount is useful inside the first-year cap. I will turn away a “wait and save MIP” plan whose only thesis is a dead letter.
If leftover cash after costs is decorative, the 60% rule is irrelevant. Skip the HECM. When the math works, treat 24 CFR 206.25 as a draw calendar, not as an insurance coupon.
Uri can dislike the 60% first-year cap on a paid-off Goodyear house. He cannot treat it as MIP savings. Mortgagee Letter 2017-12 already charged 2.00% of claim amount. 24 CFR 206.25 is a draw calendar. Month thirteen lifts the cap if occupancy still holds. It does not refund insurance. Mandatory obligations plus 10% of principal limit can exceed 60% without breaking 24 CFR 206.25. A Goodyear payoff of a large first mortgage is that test working. A paid-off house that wants 80% as a day-one check is the cap working the other way. Neither path restores revoked MIP.