Or, if you prefer to see things graphically, you can see the relationship between HECM interest rates and principal limit factors.

Sample principal limit factors for a 62-year old borrower across various interest rates.

How Age Affects Your HECM Loan Proceeds

Higher ages provide additional proceeds on HECM loans, even at the same interest rates. Lower ages provide fewer proceeds on HECM loans.

The principal limit factor (PLF) is multiplied by the lesser of the home value or the lending limit to determine the principal limit, which is the maximum amount of money that can be advanced on a HECM loan.

Sample Principal Limit Factors for 6% Rates Across Various Ages

Selected ages and rates are provided from HUD 2017 PLF tables. This is just an illustration and may not accurately reflect today’s market rates. To calculate your numbers specifically, use a HECM Calculator.

Frequently Asked Questions

What is the HECM rate lock?

HECM loans can have their expected rate locked for up to 120 days. This is valuable because it allows you to obtain the lowest interest rate available, at any point, during the application process.

South River Mortgage automatically sets up the expected rate lock and finds the lowest rate for you when calculating your principal limit.

What is the difference between the initial rate and the expected rate?

If you have an adjustable rate HECM:

• The initial rate is the rate that is used to calculate interest charges on your loan. The initial rate usually follows either the 1-Year CMT or the 1-Month CMT index.
• The expected rate is the rate that is used to determine the principal limit on your loan. The expected rate follows the 10-Year CMT index.

If you have a fixed rate HECM, then your initial rate and expected rate are the same.

What is the margin for an adjustable rate HECM loan?

The margin is the set number added to the index to determine your rate. The margin is a number that does not change, and it is generally between 1.5% and 3%.

Note that there is no margin for a fixed rate HECM.

What is an index for an adjustable rate HECM loan?

The index represents the market interest rates at the time. When your loan interest rate adjusts, it will adjust to the market interest rates (as long as they are below the caps on the loan).

For the initial rate, the 1-year Constant Maturity Treasury (CMT) or the 1-month Constant Maturity Treasury (CMT) index is used. For the expected rate, the 10-year Constant Maturity Treasury (CMT) is used.

Note that there is no index for a fixed rate HECM loan.

Why are most HECM loans adjustable rates?

Most HECM loans are adjustable rates because these are the only program that allows for the payment plan flexibility.

HECM fixed rates require all the cash to be taken at once, and in some cases, cash may be unavailable.

The HECM adjustable rate represents a better option for most people, as it allows them to draw cash as they need (allowing them to pay interest on only the cash they truly need).

What are the rate caps on the adjustable rate HECM?

The rate caps may vary, but they are usually 1% periodic (i.e. monthly or annual) cap and a 5% lifetime cap.

If you have an existing loan, check your HUD-1 settlement statement to verify the rate cap structure on your loan.

How frequently do the rates adjust on the adjustable rate HECM?

The most common adjustment frequency for adjustable rate HECMs is either monthly or annually. If you are not sure, you can check on your HUD-1 settlement statement to verify the adjustment frequency of your loan.