Hypothetical: at age 70, a $600,000 home with a $50,000 mortgage gives a principal limit of $219,000 at a 7.19% expected rate, but only $60,400 of cash in the first year after costs and the payoff (HUD principal limit factor tables effective October 2, 2017; HUD Mortgagee Letter 2014-21, November 10, 2014).
Reverse mortgage estimator: what you actually net
For a federally insured reverse mortgage (HECM). Uses HUD's principal limit factor table (effective October 2, 2017), the 2026 HECM limit of $1,249,125 (HUD, effective January 1, 2026) and HUD's fee rules.
Method: maximum claim amount = the lesser of your home value and the 2026 HECM limit of $1,249,125 (HUD). Expected rate = index + margin, not less than 3.000% (the floor of HUD's table); the factor is read at the HUD table step at or just below that rate, for the age you enter (ages over 99 use 99). Principal limit = maximum claim amount x factor. Upfront mortgage insurance = 2% of the maximum claim amount and the annual premium is 0.5% of the balance (HUD Mortgagee Letter 2017-12). Origination fee = the greater of $2,500 or 2% of the first $200,000 plus 1% above that, capped at $6,000 (24 CFR 206.31); lenders may charge less. All costs are assumed financed. First-year limit = the greater of 60% of the principal limit, or the mortgage payoff and closing costs plus 10% of the principal limit (HUD Mortgagee Letter 2014-21). The 10-year balance starts from the payoff, costs and first-year maximum, compounds monthly at index + margin + 0.5% and assumes the rate never changes, which an adjustable loan will not do. The default 2.00% margin is hypothetical; get each lender's margin in writing. Not a loan offer.
What this estimator does
The estimator above follows the federal formula for a Home Equity Conversion Mortgage (HECM), the reverse mortgage insured by the Federal Housing Administration (FHA), part of the Department of Housing and Urban Development (HUD). It shows roughly how much of your home's value you could reach, what comes off the top, and how much you could take in the first year. It is an education tool from a nonprofit. It is not an offer or a loan approval.
You enter four things: the home's value, the youngest borrower's age (or the age of an eligible non-borrowing spouse, if younger), any mortgage still owed, and an estimate of third-party closing costs. You can also change the expected interest rate.
Step 1: the principal limit
Principal limit = the lower of your home value or $1,249,125, times a principal limit factor. The $1,249,125 is the 2026 national HECM limit, effective January 1, 2026 (HUD, FHA Mortgage Limits, checked October 14, 2026). The lower of value and limit is called the maximum claim amount (24 CFR 206.3, checked October 14, 2026).
The factor comes from HUD's principal limit factor table effective October 2, 2017, which runs from age 62 to 99 (HUD, HECM Principal Limit Factor Tables, checked October 14, 2026; Mortgagee Letter 2017-12). The older the youngest borrower, the higher the factor. The higher the expected rate, the lower the factor.
The expected rate is the index plus the lender's margin (24 CFR 206.3). The estimator starts at 7.19%: the 10-year Treasury rate of 5.19% on October 14, 2026 (U.S. Treasury, Daily Treasury Par Yield Curve Rates) plus a hypothetical 2.00% margin. Change it to the expected rate on any written offer. The table has no rows below 3.000%, so the estimator never goes lower, and it reads the table at the one-eighth-point step at or below your rate. See reverse mortgage rates for how margins work.
Step 2: what comes off the top
Net available = principal limit, minus upfront costs, minus any mortgage payoff.
- Initial mortgage insurance premium: 2% of the maximum claim amount (HUD, Mortgagee Letter 2017-12, August 29, 2017).
- Origination fee: the estimator uses the federal cap: the greater of $2,500 or 2% of the first $200,000 plus 1% of the rest, never more than $6,000 (24 CFR 206.31, Allowable charges and fees, checked October 14, 2026). Lenders may charge less, so a real fee can be lower.
- Third-party closing costs: appraisal, title, recording and similar. The estimator starts at $3,000 as a placeholder estimate. Replace it with the figure on a written estimate.
- Existing mortgage: it must be paid off from the loan or with your own money at closing (Consumer Financial Protection Bureau (CFPB), Can anyone take out a reverse mortgage loan?, last reviewed August 28, 2026).
Full detail is on our reverse mortgage costs page.
Step 3: the first-year limit
Not all of the net amount is available on day one. In the first 12 months you can draw the greater of 60% of the principal limit, or your mandatory obligations (upfront costs and the mortgage payoff) plus 10% of the principal limit, and never more than the principal limit (HUD, Mortgagee Letter 2014-21, November 10, 2014; 24 CFR 206.25). The estimator subtracts the mandatory obligations from that limit to show the cash you could take in year one.
On an adjustable-rate loan, the rest becomes available after month 12, and the unused amount keeps growing at the note rate plus 0.5% (24 CFR 206.3). On a fixed-rate loan, which pays one lump sum at closing, the rest is never available (24 CFR 206.3 and 206.19).
What the estimate leaves out
- Set-asides. If the lender's financial assessment requires it, part of the principal limit is held back to pay future property taxes and insurance, called a life expectancy set-aside (24 CFR 206.19, checked October 14, 2026). A servicing fee set-aside can also reduce what is available.
- The appraisal. The value you type is a guess until an appraiser sets it.
- The real margin. A margin half a point higher than our hypothetical lowers the factor.
- The balance over time. What you owe grows with interest and the 0.5% annual premium. A reverse mortgage is a loan, and the CFPB calls it "not free money" (CFPB, What is a reverse mortgage?, last reviewed August 28, 2026).
Use the number to decide whether a counseling session is worth your time. Before any HECM, you must meet with a HUD-approved counselor (24 CFR 206.41); find one through the CFPB housing counselor search. If selling and moving is the other option, compare it with our home sale capital gains calculator.
A plain example: the same home at four ages
Hypothetical: a home appraised at $600,000 with a $50,000 mortgage still owed, expected rate 7.19% (table step 7.125%), origination fee at the cap, and the $3,000 placeholder for third-party costs. The last row is a $1,500,000 home with no mortgage, where the maximum claim amount stops at $1,249,125.
| Youngest age | Factor | Principal limit | Upfront costs | Mortgage payoff | Net available | Cash in first 12 months |
|---|---|---|---|---|---|---|
| 62 | 0.307 | $184,200 | $21,000 | $50,000 | $113,200 | $39,520 |
| 70 | 0.365 | $219,000 | $21,000 | $50,000 | $148,000 | $60,400 |
| 75 | 0.394 | $236,400 | $21,000 | $50,000 | $165,400 | $70,840 |
| 80 | 0.441 | $264,600 | $21,000 | $50,000 | $193,600 | $87,760 |
| 75, $1,500,000 home, no mortgage | 0.394 | $492,155 | $33,983 | $0 | $458,172 | $261,310 |
Arithmetic at age 70: $600,000 x 0.365 = $219,000 principal limit. Upfront costs are $12,000 (2% premium) + $6,000 (origination cap) + $3,000 = $21,000. Subtract those and the $50,000 payoff: $219,000 minus $21,000 minus $50,000 = $148,000 net. First-year limit: 60% of $219,000 is $131,400; mandatory obligations of $71,000 plus 10% ($21,900) is $92,900. The larger figure, $131,400, minus the $71,000 already used, leaves $60,400 of cash in the first 12 months. The other $87,600 opens up after that on an adjustable loan.
Red flags
- A lender estimate that shows the principal limit as "cash to you" without subtracting costs.
- Quoting a high amount based on an expected rate you were never shown.
- Ignoring the first-year limit when you need a large sum right away.
- Leaving the existing mortgage payoff out of the math.
- Estimating with a home value well above what similar homes sold for.
- Not mentioning a possible set-aside for property taxes and insurance.
- Showing the amount you can borrow but not what you will owe in 10 years.
- Using a fixed-rate example while describing credit line growth that only adjustable loans have.
Questions to ask before you sign
- What principal limit factor and expected rate did you use for my estimate?
- What is my maximum claim amount?
- What are my total upfront costs, and are any optional?
- How much cash can I take in the first 12 months?
- Will any of my principal limit be held back for taxes and insurance?
- Is there a servicing fee set-aside, and how large is it?
- If my appraisal comes in lower, how does the number change?
- How would the amount change with a fixed rate instead of adjustable?
- What would I owe after 5 and 10 years if I draw this amount?
- If my spouse is younger than 62, how does that change the estimate?
Long-Term Care and Your Home: Read This Before You Sign
A one-page checklist: what Medicare will and will not pay, the Medicaid look-back and estate recovery basics, the questions to ask before you buy long-term care coverage or take a reverse mortgage, and the tax rules if the house is sold. What to check on any reverse mortgage estimate: the factor, the costs, the payoff and the first-year limit. We’ll email it to you.
The Retirement Literacy Foundation is a 501(c)(3) public charity (EIN 41-5062266). General education, not tax, legal or investment advice. Nothing is sold here. Unsubscribe any time.
Sources
- HUD: FHA Mortgage Limits, HECM limit for calendar year 2026 (checked October 14, 2026)
- HUD: HECM Principal Limit Factor Tables, effective October 2, 2017 (checked October 14, 2026)
- HUD: Mortgagee Letter 2017-12, HECM Mortgage Insurance Premium Rates and Principal Limit Factors (August 29, 2017)
- HUD: Mortgagee Letter 2014-21, Revised Changes to the HECM Program Requirements (November 10, 2014)
- eCFR: 24 CFR 206.3, Definitions (checked October 14, 2026)
- eCFR: 24 CFR 206.31, Allowable charges and fees (checked October 14, 2026)
- eCFR: 24 CFR 206.25, Calculation of disbursements (checked October 14, 2026)
- U.S. Treasury: Daily Treasury Par Yield Curve Rates, 2026 (October 14, 2026)
- CFPB: Can anyone take out a reverse mortgage loan? (last reviewed August 28, 2026)
- CFPB: What is a reverse mortgage? (last reviewed August 28, 2026)
The Retirement Literacy Foundation is a 501(c)(3) public charity. This page is general education, not tax, legal or investment advice. Nothing is sold here, no product is recommended, and RLF accepts no funding from financial companies. Rules and figures change; each one above shows its source and date. Check anything you plan to act on with your state insurance department or a qualified professional who is not paid on the product.