I ran the calculator for the line of credit on the fixed rate and saw that despite in year 16 equity turns negative that the available line of credit stays positive until year 20, the last year shown. Is that correct? This would be with appreciation at 1% Thank you
Not knowing all the particulars for your loan (age, value, existing lien to be paid and how much cash you intend to take and when), I really am not sure how to answer this question. I think I know what you're asking so let me take a stab at it and if this does not answer your question, please feel free to get back to us.
The line of credit grows on the fixed rate at a constant percentage based on the unused portion of the line yearly. In other words, as long as you don't use the line, it will continue to grow in availability by multiplying the unused portion of the line by the credit growth rate. The property value is not a factor in this computation, until you reach the HUD maximum claim amount.
Once your line reaches the HUD maximum claim amount on your documents (150% of the appraised value or the HUD maximum lending limit, whichever is less), then to receive any additional funds you would need to request an extension of the line. For example, if your property was worth $500,000 at the time you first took out your reverse mortgage, your maximum claim amount would be $750,000. If you were 70 years old living in CA with normal fees and you did not touch your line, sometime just before the end of the 16th year, between the existing balance and the line available of about $730,000+/-, you would reach the HUD maximum claim for your loan. You could draw up to the $750,000 no matter what the current value of the home was, but in order to exceed that amount, you would need to get an extension from the lender.
We were curious to see how many borrowers have actually ever been limited by this provision so we reached out to the industry's only rated servicer to ask. They have never had a borrower hit this maximum as that would take borrowers who did not access any of the line typically for over 15 years and it just hasn't happened. The President did confirm that if the property had increased in value the procedures were in place to process an extension, but that no borrower had yet even made the request so he could not comment on the viability from the valuation standpoint.