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Reverse Mortgage Glossary

Reverse Mortgage Line of Credit Growth Rate

Reverse Mortgage Line of Credit Growth RateThe reverse mortgage line of credit growth rate is the annual rate of increase on the variable-rate HECM credit line.

The growth rate is always 1.25% above the initial interest rate, or IIR, which is the annual rate that interest accrues on the loan balance. For example, if the interest rate (IIR) on the loan balance is 4.50%, then the growth rate on the available credit line would be 5.75%.

Note that the growth rate only applies to the available credit on the line of credit.

As long as at least one borrower is living in the home and paying the required property charges (property taxes, homeowner’s insurance, etc.), the line of credit is always guaranteed to grow without limit.

Also note that there is no growth rate on a fixed-rate HECM because proceeds can only be received as a one-time lump sum payment. There is no option for a line of credit on the fixed-rate HECM.

A Powerful Financial Tool

The line of credit on a variable-rate HECM can be a hugely powerful financial tool if you owe little to nothing on your home. Because of the growth rate, the line of credit essentially turns a large portion of the value of your home into a liquid, tax-free retirement account that will increase in value over time. As long as you uphold your end of the bargain (live in the home and pay required property charges), the available line of credit will grow and compound with no limit.

As an example, let’s assume you qualify for a line of credit worth $150,000. If you didn’t touch the line of credit and received a 5% growth rate, it would grow as follows for the first 15 years of the loan:

Year Amount
1 $157,500.00
2 $165,375.00
3 $173,643.75
4 $182,325.94
5 $191,442.23
6 $201,014.35
7 $211,065.06
8 $221,618.32
9 $232,699.23
10 $244,334.19
11 $256,550.90
12 $269,378.45
13 $282,847.37
14 $296,989.74
15 $311,839.23

If you have a lot of equity locked up in your home and are relatively early in your retirement, the HECM line of credit could benefit you enormously – particularly if you don’t need the money right now. Just get the line of credit set up and let it grow and compound over the coming years.