PLL - Principal Limit Lock
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Principal limit lock (PLL) is a feature of [tag]reverse mortgages[/tag] that freezes the expected interest rate on federally-insured [tag]Home Equity Conversion Mortgage[/tag] (HECM) reverse mortgages for a period of up to 60 days from the date of application.
The expected interest rate, is a critical factor that is used to determine how much equity an elderly homeowner is eligible to receive from a [tag]HECM[/tag]. It is calculated by adding a pre-set margin to the 10-Year U.S. Constant Maturity Treasury rate. The 10-Year U.S. Constant Maturity Treasury rate is published weekly by the Federal Reverse. The margin that is added is currently 1.5% for monthly-adjusted loans and 3.1% for annual-adjusted loans.
The PLL mechanism is intended to protect borrowers from interest rate changes during the application process. Prior to the implementation of the principal limit lock, if rates increased between the time of application and the loan closing, the borrower received less money.
If rates decline between the date of application and closing, the homeowner can utilize the lower of the two rates and receive more money than what was originally quoted. If the loan closes after the 60-day lock expires, the prevailing interest rate on the actual date of closing is used, regardless of whether it’s higher or lower.
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