If my homes value is $360,000 and my original Principal Limit was $190,000 that 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?

Hello Vincent,

You owe what you borrowed plus and fees you incur plus whatever interest accrues on that amount.  If I am understanding your question correctly, you currently have an available Principal Limit of $195,000 at this time (your available line grew from $190,000 to $195,000) and your total loan balance, that is 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 normal 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 gave you an increased 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, then 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 you sell the house, you don’t have to pay any of that increase back.

Your payoff at any given time would not be exactly what your balance on your statement shows because the statement 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 what your payoff balance will be with interest from the statement date to the closing of the loan.  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) but it will help you determine what you will receive after the loan is repaid.