Reverse Mortgage Loan Limit Increases to $1,089,300 for 2023

If anyone still thinks the Reverse Mortgage Program is just for aging adults that are experiencing a financial hardship, think again. Financially sophisticated higher net worth homeowners are taking advantage for this program to provide a standby source of liquidity, or purchase a suitable replacement home in retirement. Big changes ahead for the FHA Reverse mortgage Programs and reverse mortgage industry as the new year begins. For starters, the Reverse Mortgage has a new loan limit of $1,089,300 for 2023. Higher interest rates are affecting the principal loam limits. The principal limit, or PL, is the total amount of proceeds available to a HECM reverse mortgage borrower. Think of PL like your paycheck after the deductions come out. The principal limit is the total pool of cash available to the borrower: the percentage of the value of the home based on interest rates, age of borrower, and Maximum claim amount or appraised value of the home.

In 2022, the mortgage and real estate markets were full of surprises. A little over 1 year ago at the end of 2021, it was possible to get a 30-year fixed interest rate in the low 3s or better. The end of 2022,?you could expect an average 30-year fixed interest rates are in the 6s and beyond. ?

Rising interest rates have led to uneasiness in the reverse mortgage industry. Top 10 lender Reverse Mortgage Funding?recently declared bankruptcy?after losing the warehouse lines it uses to fund loans. AAG, the #1 retail lender by funding volume for the last 5 years, downsized its workforce significantly and?is now being acquired?by Finance of America.

Reverse Mortgage interest rates have risen over the last year, which has led to decreased?principal limits: less available access to equity. This means that Reverse Mortgage borrowers are eligible for a smaller portion of their home’s value than when rates were lower.

However, rising rates are not all bad for the Reverse Mortgage.?Line of credit growth rates?are the highest they’ve been in many years. If you owe little on your home, and don’t need all the money available from a Reverse Mortgage Line of Credit now, you’ll be able to take full advantage of very attractive high line of credit growth rates. This provides access to more principal limit (line of credit) in the future.?

What is ahead for Reverse Mortgages in 2023? Interest rate and real estate market volatility will likely continue as the Fed continues to battle inflation.?More volatility for the mortgage and real estate markets ahead. We are experiencing inflation levels not seen since the 1980s. The Fed will likely continue to increase interest rates (or at least hold them at a relatively high level) as inflation returns to the Fed target rate. This could increase the unemployment rate and the possibility that inflation could push the economy into recession. However, we are still below the natural rate of unemployment, there are some layoffs, but a lot of job openings available.

Interest rates and unemployment have a direct impact on home prices, so it’s possible we’ll see some home price declines in many areas of the country in 2023. The markets that saw the most aggressive home price increases during the pandemic could be hit the hardest.

Phoenix led the way in the last housing crash, so it could be a good indicator for what may be in store for other pandemic boom markets like Las Vegas, Austin, Boise, and Florida.

Higher unemployment and falling home prices could cause an increase in foreclosures and short sales, which will multiply headaches for mortgage servicers. It is possible that we may see a few mortgage companies downsize or go bankrupt in the coming year.?

Any recession looks set to be mild, though our US GDP outlook of -0.2% and 0.9% for 2023 and 2024 is lower than consensus. Fed interest rates appear close to a peak – we estimate 5% – and are likely to remain at that level until 2024.

Increased foreclosures and short sales can increase housing inventory and put further pressure on home prices. I think lower interest rates will materialize sometime in the near future, but we won’t see them until the Fed slows down the economy first and reduces inflation. The Fed has stated that it’s willing to sacrifice some economic growth to get inflation under control.

It’s hard to say exactly what is in store for 2023, but chances are there will be some further economic turmoil. Inflation is showing signs of tempering, home prices have lost some value since 2021, unemployment remains stubbornly steady, and the economy may or may not experience a recession.

A higher FHA loan limit for 2023

FHA revises Reverse Mortgage loan limits to mirror current real estate market conditions. Last year the HECM lending limit was $970,800, but this year the FHA loan limit will?increase to a massive $1,089,300?for case numbers issued on or after January 1, 2023. This change means that many homeowners with higher home values may qualify for significantly more money from a reverse Mortgage.

The term “lending limit” can be somewhat confusing. The lending limit?is not a loan limit: how much you can borrow over time. If your loan balance hits the lending limit, your loan will not become due or required to start making payments.

The lending limit is simply a limit on the Maximum claim Amount (appraised value) for purposes of calculating the principal limit (loan proceeds a borrower is eligible for). If the homes loan limit, or appraised value increases, then it means homeowners with higher value homes will have access to more equity than before.

If you’ve been considering a Reverse Mortgage, don’t let the temporary higher rates deter you. Most Reverse Mortgage borrowers select the adjustable-rate option, so your interest rate adjusts automatically as rates go up or down: this eliminates the need to refinance due to increases in your interest rate. A reverse mortgage is a great option for many seniors whether rates are higher or lower. If a Reverse Mortgage makes sense for you, take advantage of the program and enjoy the benefits it offers you.

Jack Benke is a Mortgage Loan Originator NMLS 322773 and specializes in Reverse Mortgage Programs. Jack can be reached at 651-398-3193 for a no-cost initial consultation to see if a Reverse Mortgage is suitable for your situation.