The maximum loan size allowed under the nation's most popular type of reverse mortgage has increased for 2005. Loan limits for the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA) and accounts for about 90 percent of all reverse mortgages made in the U.S., rose nearly 8 percent on January 1.
A reverse mortgage is a loan that allows homeowners aged 62 or older to borrow against their equity while remaining in their homes. The money can be used for any purpose, and repayment is not required until the home is sold or is no longer occupied by the borrower. Under a HECM, there is no minimum or maximum home value, but loans are capped at limits that the FHA sets for each county in the U.S. The highest limit, available in most major metropolitan areas, increased from $290,319 in 2004 to $312,895 for 2005. The lowest limit, which applies in most rural and nonmetropolitan areas, increased from $160,176 to $172,632.
The maximum size of the less common Home Keeper loan, a Fannie Mae reverse mortgage product designed for homes with values that exceed the FHA's county limits, increased from $333,700 in 2004 to $359,650 for 2005. The limit is 50 percent higher in Alaska, Hawaii and the U.S. Virgin Islands.