The Federal Housing Administration (FHA) recently announced that lending limits for home mortgages will be increased from $822,375 to $970,800 starting January 1, 2022.

Included in this increase are Home Equity Conversion Mortgages (HECM).

This has some important implications for potential reverse mortgage borrowers and homeowners.

How will the loan limit increase affect you? Here’s what you need to know.

How the New Lending Limits Will Affect Your Payout

Home Equity Conversion loans have long been a popular tool for older homeowners, giving them the option of drawing on their home equity in order to augment and stretch retirement income.

This payout provides a nice financial cushion to borrowers. Older homeowners use them to end current mortgage payments. This increases cash flow. It's also used to augment retirement income, pay for home updates or pay off credit card bills.

The money does not have to be paid back until they move out or the home is sold.

However, in some cases, older homeowners may be unable to draw funds calculated on the full value of their homes because of loan limits put in place by the FHA.

Every year since 2009, the FHA has raised these limits to better align them to current home prices.

With home price inflation at an all-time high, the FHA has announced a new increase in loan limits for 2022.

Although the FHA raises limits every year, this particular increase is historic and unprecedented, opening up all kinds of new possibilities for borrowers and homeowners.

So, what does this mean for you?

For Retirees

If you’re retired or considering retirement, some exciting options are now available to you. You have the potential to fund a more comfortable retirement through a reverse mortgage because of the increased loan limits.

For Current Borrowers

If you are already receiving monthly payouts on a HECM loan, you may now have the flexibility to refinance your mortgage for a better rate. You may also qualify to reduce your annual mortgage insurance rate. This could benefit you a lot, especially if your home has appreciated in value since you first took out your reverse mortgage.

For Homeowners

If you’re a homeowner who is considering taking out a reverse mortgage, the 2022 loan limit increase translates into a better choice of products, especially if your home value is between $822,375 and $1,000,000.

In fact, if your home is valued at over $900,000, you may qualify for $70,000 more than you could access under the 2021 limits.

In the past, those with a high home value missed out on larger payouts. This was especially true in parts of the country where home values are high, such as Hawaii, California, and New York.

In the past, those with high-value homes seeking a reverse mortgage often had to resort to jumbo mortgages.

The increased loan limit will result in a wider array of more attractive choices for older homeowners looking to draw cash against the value of their homes.

If you’ve ever considered purchasing a HECM, there’s no better time than right now.

Reach out to Angella Conrard, CRMP, and her team to find out what they can do for you.