The principal limit is the HECM’s opening capacity. HUD computes it from the youngest borrower’s age, the maximum claim amount, and the expected average mortgage interest rate, using the factor tables that accompanied Mortgagee Letter 2017-12. Jay Zayer, a CRMP licensed in California and Arizona, treats that number as a cap on advances, not as cash sitting in a drawer.
Maximum claim amount is the lesser of the appraised value and the national HECM limit, which is $1,249,125 for 2026 (Mortgagee Letter 2025-22). The factor then takes only a share of that claim amount. In the current mid-to-upper 6% expected-rate range, that share is typically in the mid-30s to low-50s depending on age. Use the calculator instead of quoting a friend’s percentage.
Age, claim amount, and expected rate as the three inputs
Age is the youngest borrower (24 CFR 206.33). Claim amount is value capped by the national limit. Expected rate on an ARM is the 10-year CMT plus the lender’s margin, rounded to the nearest one-eighth of one percent (24 CFR 206.3). HUD does not let originators interpolate between published ages. Ages 70 and 71 share a factor at a given rate. Look up the cell.
Initial MIP of 2.00% of the claim amount (Mortgagee Letter 2017-12) is a closing cost, not a second principal limit. It reduces net proceeds. It does not change the factor table.
Why your neighbor’s percentage is the wrong planning tool
Different ages, different expected rates, and different claim amounts produce different limits. A $2 million house still uses $1,249,125 as the 2026 claim-amount cap. Equity above that cap does not raise the HECM principal limit.
Proprietary reverse mortgages can use private tables. They are not the HUD workbook. Mixing the two percentages is how people over-promise proceeds.
First-year disbursement under 24 CFR 206.25 can also leave part of the principal limit untouched even though it “exists” on paper.
What to do with the principal-limit figure once you have it
Subtract mandatory payoffs and closing costs. Decide whether leftover capacity should be cash, a line, or a tenure plan. If the remainder is tiny, a HECM may not be worth the MIP. If the remainder is large and unused, line-of-credit growth becomes the feature worth understanding.
Compare how interest accrues on whatever you actually draw. Eligibility still sits upstream at who qualifies.
How do you turn a HUD cell into leftover cash?
Walk through the arithmetic for a 68-year-old with a $700,000 home that is already paid off. Maximum claim amount is $700,000 because that value sits under the 2026 national cap of $1,249,125 (Mortgagee Letter 2025-22). At a 7.000% expected rate as of 22 September 2026, the published age-68 factor produces a $249,900 principal limit (hecm-factors.md). Subtract financed initial MIP of 2.00% of claim amount ($14,000) plus origination and third-party costs. Net capacity is about $225,900. That net figure is what can become cash, a line, or a tenure plan. It is not the home’s equity.
The same age on a $700,000 home with a $300,000 mortgage does not close as a cash-out story. Gross principal limit is still $249,900. The payoff exceeds that limit. Cash to close is about $74,100 unless the family brings money or the file dies. Equity of $400,000 did not create a $400,000 HECM.
- Look up the youngest borrower’s integer age. Do not interpolate. Ages 70 and 71 share a factor at a given rate in the Mortgagee Letter 2017-12 tables.
- Cap value at the national HECM limit. Extra value does not raise a HECM principal limit.
- Apply the expected-rate column after 24 CFR 206.3 rounding.
- Subtract liens, initial MIP, origination under 24 CFR 206.31, third-party fees, and any LESA.
- Apply the first-year disbursement cap in 24 CFR 206.25 to whatever you wanted as cash.
This number does not help a household that needs sale-like proceeds. HUD factors in the mid-to-upper 6% expected-rate range typically sit in the mid-30s to low-50s of claim amount. Selling is the tool when you need most of the equity. See versus selling.
What can go wrong: someone quotes last year’s factor, or a neighbor’s age-85 percentage, as if it were your file. Expected rate moves with the 10-year CMT and the lender margin. The site assumption is 7.000% as of 22 September 2026. Use the calculator rather than a remembered percent.
A follow-up: does a higher appraisal always raise the principal limit? Only while value is still under the national cap. A $1.4 million appraisal in 2026 still uses $1,249,125 as claim amount (Mortgagee Letter 2025-22). The extra value is sale equity, not HECM capacity. That is why jumbo proprietary programs exist. It is also why a neighbor’s $2 million house does not prove your HECM percentage. If value is under the cap, a higher appraisal can raise claim amount and therefore the principal limit. If value is already at the cap, the extra appraisal dollar is sale equity only.