HECM borrowing capacity = Home Value × Principal Limit Factor (PLF) - Deductions.

PLF ranges 30-75% based on age (higher age = higher PLF) and expected interest rate (higher rate = lower PLF). 2025 example: Age 70, $400k home, 6% rate → PLF ≈52% → $208k principal limit.

Deduct existing mortgage ($150k), upfront MIP 2% ($8k), origination fee 2% ($6k), closing ($3k) = $41k net proceeds.

Actual PLF from HUD tables (www.hud.gov/program_offices/housing/sfh/hecm).

HECM offers 5 payout options: (1) Lump Sum - one-time fixed-rate payment, (2) Tenure - equal monthly payments for life while in home, (3) Term - equal payments for set period (10/15/20 years), (4) Line of Credit - draw as needed with growth rate, (5) Combination - split between monthly payments + line of credit. 2025 example with $200k principal limit: Tenure = $850/month lifetime, Term-15yr = $1,400/month, LOC = $200k growing 5%/year → $325k in 10 years.

Most popular: LOC (50% of borrowers) for flexibility + growth.

Unused HECM line of credit grows at same rate as loan balance: Expected Rate + Lender Margin (typically 5-6% total in 2025).

Growth compounds annually on undrawn portion only.

Example: $100k LOC at 5.5% rate → Year 5: $131k, Year 10: $172k, Year 20: $292k.

Key advantage: Growth is guaranteed regardless of home value changes.

If home appreciates slower than LOC growth, LOC can exceed home value (FHA insurance covers difference).

Optimal strategy for young borrowers (62-65): Keep LOC untouched to maximize growth over 20-30 years.

HECM costs (2025): (1) Upfront MIP 2% of home value (max $13,511 on FHA limit $1,149,825), (2) Origination fee: Greater of $2,500 or 2% first $200k + 1% above (max $6,000), (3) Third-party closing $2,000-5,000 (appraisal, title, recording), (4) Ongoing MIP 0.5% annually on loan balance, (5) Servicing fee $30-35/month.

Total upfront: $400k home = 2% MIP ($8k) + $6k origin + $3k closing = $17k (4.25%).

These are added to loan balance, not paid out-of-pocket.

Lower-cost alternative: Proprietary reverse mortgages (non-FHA) for homes >$1.15M may have lower fees but no FHA insurance protection.

HECM loan becomes due when: (1) Last borrower permanently moves out (>12 consecutive months away), (2) Last borrower dies, (3) Home sold, (4) Borrower fails to pay property taxes/insurance, (5) Home not maintained in reasonable condition.

Upon maturity, heirs have 3 options: (a) Repay loan balance (keep home), (b) Sell home and keep equity above loan, (c) Deed home to lender (non-recourse - never owe more than home value).

Example: Borrow $200k at 70, die at 85 with $350k balance, home worth $300k → Heirs pay $300k (95% of value) or walk away, FHA insurance covers $50k shortfall.

No prepayment penalty - can repay anytime.

HECM eligibility (2025): (1) Age: All borrowers/spouses must be 62+ (younger spouse reduces proceeds via PLF), (2) Property: Primary residence (must live 183+ days/year), single-family home, 2-4 unit owner-occupied, FHA-approved condo/PUD, manufactured home 1976+, (3) Equity: Own outright or low mortgage balance (must pay off with proceeds), (4) Financial: Pass financial assessment (credit/income review), sufficient income for taxes/insurance/maintenance, no federal debt delinquencies, (5) Counseling: Complete HUD-approved counseling ($125-200).

Ineligible properties: Co-ops, vacation homes, investment properties, homes >$1,149,825 (need proprietary), homes with unpaid property taxes/liens (must resolve first).