I really goofed on my calculations in my last Blog, Breaking News! One National HECM (Reverse Mortgage) Lending Limit passed by the Senate!, and a couple of brokers pointed out my mistake (thanks, guys!).

I commented on how my client would benefit from the increase in the lending limit to $417,000.  I explained that with the current lending limit of $372,790, they would be $50,000 short of being able to pay off their existing mortgage and that with the new limit, they could access enough equity to just cover the mortgage.  I was so looking forward to telling them!

Well, I didn't calculate correctly.  Because our reverse mortgage calculators do not yet reflect the new lending limit (HUD has yet to give their blessings with a Mortgagee Letter), I did a quick calculation but failed to take into account that not all of the increase will flow to the bottom line.  

It appears that my borrower will only have access to an additional$35,000 of that increase, not the entire increase, leaving them still short by $25,000.  That is much better, but if you don't have $25,000 it might as well be $50,000!

Here is my new calculation:  With the current limit, the Principal limit is approximately $242,000 which is 66% of the limit of $362,790.  Applying that same percentage to $417,000, I get a principal limit of $275,000.  Then of course, the service set-aside of approximately $5000 (this is not a fee, but it is an equity reserve) is deducted plus approximately $15,000 in fees, leaving the borrower with a net principal limit of $255,000.  With a mortgage of $275,000 to pay off, they are still short.  Sigh....

I always own up to my mistakes and I really appreciate those of you who pointed this out to me.   That's what I get for being in a hurry!