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The principal limit is a term most often used in reverse mortgages to refer to the maximum lifetime amount a borrower can obtain from the facility.
Different lenders can have different way in which to calculate the principal limit.
However, formulas would almost certainly take into account the age of the youngest borrower, value of the property, and the projected interest rate for the loan.
This is because the nature of a reverse mortgage only allows the lender to get a loan repaid upon the borrower’s death.
So a lot of complex math and equations are used to determine an appropriate principal limit that serves the needs of the borrower, while remaining a logical deal for the lender.
If the loan is too small, then the borrower might not be able to access enough funds. And if the loan is too big, the lender risk making a loss.