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Home / Questions / How does the reverse mortgage line of credit growth rate work?

If the value of my home is $360,000 and my original Principal Limit was $190,000, which has grown to $195,000 against a total loan balance of $30,000, what would be the case if I sold my house tomorrow? Would I owe nothing and be on the plus side of $5,000?

By Vincent S. on 01.11.2019

Hello Vincent,

You owe what you borrowed, any fees you incur, and whatever interest accrues on that amount.  If I understand your question correctly, you currently have an available Principal Limit of $195,000 (your available line grew from $190,000 to $195,000), and your total loan balance, the amount you owe, is $30,000.  Is that correct? 

If so, you would owe the $30,000 (plus any accrued interest) when you sold your home, plus any regular fees to close the loan.  Your available Principal Limit grows on the unused line at a rate equal to the interest rate plus the MIP accrual rate, so it will continue to grow if you don’t use all your money and the loan remains open.  But you only owe what you use and the interest that accrues on the money you borrow.

The credit line growth is not income, and it’s not money you owe just because the line grew if you didn’t borrow it.  Think of it like a credit card that increases your line of credit.  If you had a $10,000 line of credit on your card and the lender sent you a notice telling you they increased your line to $20,000, but you didn’t charge on that card, you don’t owe anything even though the credit line went up.  If you chose to use it and charged $20,000 worth of merchandise, you would owe the $20,000.  The increase in your line on the reverse mortgage is like that.  If you never use the funds and sell the house, you don’t have to pay back any of that increase.

Your payoff at any given time would not be exactly what your balance on your statement shows because the information is always a bit behind.  Interest continues to accrue, and the balance increases as the interest accrues, and that will give you a good idea of your payoff balance with interest from the statement date to the loan's closing.  Depending on how long it takes to sell the home and close the transaction will determine the additional amount owed (in addition to any funds you draw during that time, if any). Still, it will help you determine what you will receive after repaying the loan.