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Reverse Mortgage Line of Credit & Growth Rate Explained

February 17, 2025

Michael G. Branson Edited by

Cliff Auerswald

118 comments

Table of Contents

• Reverse Mortgage Line of Credit: Why It’s the Most Popular Option

• Why So Many Homeowners Choose the Line of Credit

• Why Flexibility Matters

• How Interest Works With a Reverse Mortgage Line of Credit

• Why Fixed-Rate Reverse Mortgages Are More Limited

• Benefits and Federal Protections of a Reverse Mortgage Line of Credit

• Understanding the Reverse Mortgage Line of Credit Growth Feature

• Example of How the Line of Credit Can Grow Over Time

• Estimated Line of Credit Growth Over Time

• Reverse Mortgage Line of Credit Compared to a Traditional HELOC

• 2026 Reverse Mortgage Line of Credit vs. HELOC: Which Fits You?

• Line of Credit FAQs

• Determining Whether This Option Fits Your Plans

Reverse Mortgage Line of Credit: Why It’s the Most Popular Option

A reverse mortgage line of credit is one of several ways to access funds through an FHA-insured Home Equity Conversion Mortgage (HECM). Over time, it has become the most commonly selected option, largely because it allows equity to be used gradually rather than all at once.

That preference is reflected in a national study conducted by the AARP Public Policy Institute, which surveyed homeowners who had completed HUD-required reverse mortgage counseling. Among these informed shoppers, roughly two-thirds chose the line of credit after reviewing all available payment options. Importantly, the study included both borrowers who moved forward and those who decided against a reverse mortgage, providing insight into real decision-making rather than marketing impressions.

For many homeowners, the appeal came down to flexibility. Expenses in retirement tend to arise over time, not all at once, and the line of credit allows access to equity without forcing unnecessary borrowing early on.

Although the AARP survey was conducted in 2006, it focused on HUD-counseled consumers, and the underlying HECM line of credit structure it examined remains in place today.

Why So Many Homeowners Choose the Line of Credit

The reverse mortgage line of credit gives you flexibility and control. At closing, HUD restricts how much of that amount can be accessed during the first 12 months. After that initial period, any remaining available funds may be accessed at the homeowner’s discretion. There is no requirement to draw the full amount and no schedule dictating when withdrawals must occur.

Unlike other loan types, you’re not required to take all your money upfront. You decide how much to use and when, which helps with long-term financial planning.

Why Flexibility Matters

Despite being offered only with an adjustable interest rate, many borrowers prefer the line of credit because of its structural flexibility.

With a reverse mortgage line of credit:

Funds can be accessed over time rather than taken all at once
Interest accrues only on funds that are actually borrowed
Unused credit increases over time, expanding future borrowing capacity

This structure allows homeowners to preserve equity until it is needed, rather than borrowing funds prematurely.

How Interest Works With a Reverse Mortgage Line of Credit

Interest on a reverse mortgage line of credit is charged only on the money actually borrowed. Funds that remain unused do not accrue interest.

This distinction is important. With a lump-sum payout, interest begins accruing immediately on the entire borrowed amount. With a line of credit, unused funds remain untouched and do not increase the loan balance.

As long as there is unused credit available, that unused portion grows over time. The growth rate is tied to the loan’s adjustable interest rate plus the annual Mortgage Insurance Premium renewal. While interest rates may fluctuate, the growth feature itself is guaranteed for the life of the loan, provided the borrower continues to meet program requirements.

Why Fixed-Rate Reverse Mortgages Are More Limited

Fixed-rate reverse mortgages operate under a different structure. With a fixed-rate option, all available proceeds are taken as a single lump sum at closing. There is no line of credit and no ability to access additional funds later. Interest begins accruing immediately on the full amount borrowed.

This structure can be appropriate when a homeowner needs to pay off an existing mortgage balance in full and does not anticipate needing future access to equity. Outside of that narrow use case, fixed-rate reverse mortgages tend to limit flexibility later in retirement.

Benefits and Federal Protections of a Reverse Mortgage Line of Credit

Compared to a fixed-rate reverse mortgage, the line of credit option offers structural advantages that are designed for long-term use rather than one-time access.

Funds can be accessed gradually over time.
Interest only accrues on money that is actually borrowed.
Unused credit increases over time.
The loan is insured by the FHA.

Because the reverse mortgage line of credit is insured by HUD through the FHA, access to available funds cannot be reduced or frozen due to changes in home values, market conditions, or the financial condition of the lender.

As long as the homeowner continues to live in the home as their primary residence, maintains the property, and stays current on property taxes and homeowners insurance, the terms of the line of credit must be honored.

If a lender or loan servicer were to leave the business, HUD would transfer servicing of the loan to another approved servicer. The new servicer is required to honor the original loan terms, including access to the remaining line of credit, for the life of the loan.

These protections are specific to the FHA-insured HECM program. Traditional bank home equity lines of credit do not offer the same guarantees and can be reduced or frozen at the lender’s discretion, often during periods of economic stress when access to funds matters most.Homeowner Responsibilities: A reverse mortgage does not eliminate homeowner obligations. Borrowers must continue to live in the home as their primary residence, pay property taxes and homeowners’ insurance, and maintain the home in reasonable condition. Failure to meet these obligations can result in the loan entering default, regardless of the selected payout option.

Understanding the Reverse Mortgage Line of Credit Growth Feature

The growth of a reverse mortgage line of credit is often misunderstood. It is not interest earned, and it is not income.

Instead, the unused portion of the credit line increases at the same rate as the loan balance accrues interest, plus the Mortgage Insurance Premium renewal. This increase applies only to the unused portion of the credit line.

Example of How the Line of Credit Can Grow Over Time

Let’s walk through a simple example to show how your unused funds can grow over time. Suppose today’s interest rate (known as the fully indexed accrual rate) is 6.00%, and you add the Mortgage Insurance Premium (MIP) renewal rate of 0.50%. That gives you an effective annual growth rate of 6.50%.

Now, imagine your available loan amount after closing costs and calculations is $350,000. If you don’t use these funds right away, your line of credit will grow automatically month by month.

Here’s what that looks like:

Estimated Line of Credit Growth Over Time

Time Period	Estimated Credit Line Value
Month 1 Growth	$1,895.83
After 5 Years	$516,399
After 10 Years	$714,086

If funds are partially used, the growth applies only to the remaining unused balance. As long as some unused credit remains, growth continues.

If interest rates increase in the future, the growth rate will increase as well, helping offset inflation over long retirement periods.

Reverse Mortgage Line of Credit Compared to a Traditional HELOC

A reverse mortgage line of credit shares some surface similarities with a traditional home equity line of credit, but the structure is fundamentally different.

A reverse mortgage line of credit does not require monthly payments.
There is no balloon payment after a set term.
Income and credit score requirements are not used to qualify.
Access to funds is guaranteed under FHA rules.
Unused credit grows over time.

A traditional HELOC typically requires monthly payments, is subject to lender discretion, and does not include a growth feature.

Also See: Reverse Mortgage vs. HELOC and Home Equity Loans: Easier Qualifications and More Flexibility

2026 Reverse Mortgage Line of Credit vs. HELOC: Which Fits You?

Feature	Reverse Mortgage Credit Line	Traditional HELOC
Monthly Payments Needed?	No	Yes
Balloon Payment After 10 Years?	No	Yes
Hard to Qualify on Fixed Income?	No	Yes
Minimum Credit Score Required?	No	Yes
Adjustable Rate?	Yes	Yes
Guaranteed Growth Rate?	Yes	No
Prepayment Penalty?	No	No

Line of Credit FAQs

What is a HECM line of credit?

The HECM line of credit is the most popular method of allocating funds to a federally insured home equity conversion mortgage. The reverse mortgage line of credit is guaranteed for as long as you live in your home and maintain your property taxes and homeowners insurance. The line of credit is open-ended and revolving, allowing you to advance and repay funds at any time without penalty. You can make voluntary repayments if you choose or defer interest until you sell your home later.

Which is better, a home equity line of credit or a reverse mortgage?

The answer depends entirely on your individual needs. A home equity line of credit, commonly called a HELOC, is a short-term, interest-only loan you can apply for at most major banks. These equity loans are better suited for those equipped to make monthly repayments and understand that these loans recast after ten years into a balloon note. Additionally, HELOCs are not guaranteed and can be frozen or reduced at any time due to market volatility or declining property values. A reverse mortgage line of credit is a loan that works in “reverse” and allows you to borrow money without the burden of mandatory monthly mortgage payments. A reverse mortgage is guaranteed for as long as you live in the home as your primary residence and maintain your taxes and insurance. The HECM line of credit can never be frozen or reduced due to market volatility and has the unique feature of any loan program, which is the line of credit growth rate.

How does a reverse mortgage line of credit grow?

The HECM reverse mortgage line of credit includes a built-in growth feature. The growth rate equals your current interest rate plus the FHA mortgage insurance premium (0.50% as of January 2026).

With today’s 5.00% interest rate, the combined growth rate is 5.50% per year.

Each month, this rate is applied only to the unused portion of your line of credit. As long as funds remain unused, your available credit increases automatically over time. If you take money out, future growth is based on the remaining unused amount.

Example: If you have $100,000 of unused credit, a 5.50% annual growth rate adds about $458 per month to your available line of credit, or $5,500 per year. This calculation is repeated monthly for as long as the loan remains active.

If you already have a reverse mortgage, can you get a Home Equity Line of Credit (HELOC)?

Yes and No. The federally insured HECM will allow for subordinate financing. However, finding a lending institution that would go behind a reverse mortgage is difficult due to its negative amortization.

How is the interest charged on a reverse mortgage line of credit?

The interest is charged on a reverse mortgage monthly and added to the outstanding balance. The formula for calculating interest is a simple interest formula. Interest Example: Customer has a HECM loan with an outstanding balance of $100,000 and a hypothetical interest rate of 5%. $100,000 x 0.050 = $5,000. $5,000/12 = $416.66 in interest added to the loan’s outstanding balance. Each month, this calculation is performed based on the outstanding loan balance.

Determining Whether This Option Fits Your Plans

The reverse mortgage line of credit is not designed to maximize cash upfront. It is designed to provide flexibility, preserve access to equity, and manage financial risk over time.

It tends to work best for homeowners who want optional access to funds, prefer to delay borrowing until needed, or want a long-term financial backstop rather than a one-time payout. Other homeowners may be better served by downsizing, using savings, or exploring alternative financing options.

Like any mortgage, a reverse mortgage is not appropriate for everyone. The decision should be based on timing, long-term plans, and a clear understanding of how the loan works.

Want to learn more? If you want to see how a reverse mortgage line of credit would work in your situation, you can get a personalized estimate with growth projections based on current rates. Our HECM line of credit calculator provides real numbers with no personal information required, or you can speak directly with one of our specialists at (800) 565-1722.

Reverse Mortgage Line of Credit Growth Explained

Reverse Mortgage Line of Credit Explained | Credit Line Growth

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118 Comments on this Article

Frank P.
July 8th, 2024

I am a Real Estate Broker, my client (seller) transferred title into her name after her father passed away in 2020. She wants to sell but Wells Fargo says they have no record of the HECM. We have not been able to find the servicer or lender to get a payoff so we can price it and sell the house. Any suggestions on what we can do to find the lender. The daughter is getting no statement of any kind and has not for many years.
Reply to Frank
- Michael Branson
  July 13th, 2024
  
  Hello Frank,
  
  I just actually spoke with another gentleman and yes, the heir of a reverse mortgage borrower can contact MERS (The Mortgage Electronic Registration System) and they can tell her who the current servicer is on the loan. She can go to their website here. Or she can call them at (888) 679-6377. They will tell her what she needs to verify that she is the heir of the borrower(s), but she will probably need their name and social security number and the property address to get started. They will let her know if they need anything else.
  Reply to Michael
June S.
October 17th, 2023

My husband and I just got a reverse mortgage. Can my husband withdraw money without me knowing?
Reply to June
- Michael Branson
  October 17th, 2023
  
  Hello June,
  
  The lender will allow a draw on the account with the signature of just one of the account holders, but the money must go into an account with all borrowers' names. Therefore, your husband could initiate a draw request without your participation, but if you review your bank statements, you will also know about those draws.
  I suppose you could talk to your husband and see if he would agree to make that account at the bank one that required both of your signatures to access funds. That depends on you, your husband, and your bank, though.
  Reply to Michael
  - Ken
    November 26th, 2023
    
    What happens to your line of credit if your reverse mortgage company files for bankruptcy, such as Reverse Mortgage Funding, due you lose the line of credit that has been growing?
    Reply to Ken
    - Michael Branson
      December 4th, 2023
      
      Hello Ken,
      Your loan is insured by the federal government, FHA/HUD. If your lender cannot fulfill their end of the deal on a reverse mortgage, they can always sell the servicing to another company or assign the loan back to HUD and HUD. Whether the loan is sold to another servicer or assigned to HUD, it retains its original terms.
      Reply to Michael
Yendor
July 30th, 2023

Hello Arlo,
We got a HECM in 2021 with a $130k line of credit from which we have drawn about $40k. We were told we could "pre-fund" the LOC, which I took to mean deposit money back into it. So if we put that $40k back, does it bring the LOC balance back to $130k AND reduce the loan balance, since taking money from the LOC adds to the loan? Also, can we pre-fund our LOC above the amount initially allocated at initiating the HECM loan? For example, depositing $50k vs. $40k to get the interest on the additional $10k? Thanks in advance for your answers.
Reply to Yendor
- Michael Branson
  July 30th, 2023
  
  Hello Vendor,
  You can make payments in any amount you choose at any time up to the full amount owed without penalty. There are some caveats with that, though, that you need to remember. Firstly, if you pay the entire balance off, the loan is paid in full, and your line of credit will be closed. If you would like to make a prepayment and keep the loan open, you must leave at least a small balance on the loan so that the lender does not close the loan. In this case, if you keep a balance of, say, $500.00 on the line, the loan will remain open, and you will continue to have the line available. The line of credit will continue to grow on the unused portion of the line.
  Yes, you can reborrow any funds available to you with the line of credit as long as the loan remains open and you remain in good standing with the loan. This means that you must pay all property charges on a timely basis (taxes, insurance, HOA dues, if any), and at least one original borrower on the loan must continue to live in the home as their primary residence. You cannot "over-fund" the loan for the same reason I explained above, once the loan balance reaches zero, the loan is considered paid in full and closed.
  Finally, I am concerned about your comment regarding interest when you say, "...to get the interest on the additional $10k". No one is ever paying you interest on the unused funds in your line of credit. The credit line growth you see on your account is not the interest you earn. More money is available based on the growth rate of the unused funds. If you choose to borrow them, you would owe interest on the funds you borrow rather than receive interest from anyone. The growth rate is determined by considering the funds you are not using and calculates the interest and MIP accrual that you would be accruing if you had borrowed them and allows you to borrow this money later if you want to. This way, all borrowers are treated equally. Borrowers who borrow all the money at one time and accrue interest and mortgage insurance from the very first day have no more potential risk than borrowers who wait, have their line grow over many years then borrow a much more significant amount later due to the growth in their line have the same possible risk to HUD later. But no one is paying you interest on the funds you leave in the line of credit. If you never borrow those funds, there is no payout of any interest earned, but then again, you or your heirs only owe interest on the funds you borrow for the time you actually had them outstanding.
  In your example, if you make a prepayment of all but $500, and your line of credit continues to grow, it's possible that you could have a line of credit available close to $200,000 before the loan is eventually paid off, but the only amount owed would be the $500 plus any interest and MIP that accrued on that amount (which would be nominal). The available line of credit would be higher than you started, but you would not need to repay the unused portion of the line because you never borrowed those funds. Think of it like a credit card where the bank keeps raising your limit. If you use the money, you will owe more, and the interest will accrue on the amount you borrow. But even though they keep raising your limit, if you never charge on the card and never use the funds, you don't owe them when you cancel the card (or, in this case, pay off your reverse mortgage). It doesn't matter what the maximum line of credit is when you pay it off, just the balance owed. The credit line growth is excellent for people that might need more money later in life for whatever purposes they choose, but it is not interest they are earning, and if you do use the funds, you begin to accrue interest on those funds when you draw them.
  Reply to Michael
  - Kevin L.
    August 11th, 2023
    
    Arlo:
    I have a Reverse Mortgage with a $220,963 Line of Credit. During July, I Prepaid my loan $213,000 to increase my LOC. With the interest rates where they are today, the growth that LOCs are enjoying far exceed CDs or even MYGAs.
    I currently have an outstanding Balance on my mortgage of $1,288.58. (I paid a $1,000 Prepayment to lower my outstanding Balance to only $288.58 yesterday, and it should show up in 3-4 days.)
    In the month of August 2024, my interest Rate is 7.25%, so I calculate that my LOC will grow by $1,334.97. ($220,963 X 7.25%/12 = $1,334.97.) For the same period, I will see my outstanding balance grow by only $7.79 ($1,288.58 X 7.75%/12 = $7.79.) Next Month, the Interest Rates will be increased to 7.375%. My LOC will grow by at least $1,358 while my mortgage balance, based on $288.58 will grow by only $1.77.
    It is my intent to pay down the outstanding balance to $100.00 and keep it at that amount for as long as I do not need the funds.
    The most difficult issues I have had with my mortgage is the servicing. The loan has been "sold" twice in the past 4 years, and the current servicer, Carrington Mortgage Services, LLC is the absolute worse financial services institution I have ever had to deal with. I honestly believe they do everything possible to make contacting a US Based, English as a first language employee as difficult as they possibly can. Their call center appears to be in either the Philippines or India. Attempting to get anything accomplished having to go through them is a genuine pain. Add to that the fact that no one has a direct line, you must call their 866 number, and the average wait on hold is over 20 minutes, and you have the horrible service of Carrington Mortgage Services, LLC. As the consumer, however, you have little if any power to force them to improve, and I seriously doubt they ever will.
    Thankfully, as you pointed out in your excellent article, these loans are federally Insured and the LOC is protected from the shenanigans that are common with local and even national banks, with their LOCs.
    I have established my LOC as our emergency fund and the source of funds for the future, should my spouse ever need Long Term Care.
    I will end with this...I am a 28 year old, 38 year veteran or financial services (Banking & Financial Lending), a 12 year veteran of Insurance and Financial Services, and a 15 year veteran of Academia. I have been teaching financial planning and retirement planning for the past 15 years. I obviously believe in the value of Reverse Mortgages, high fees and all, and in the past 30 days, I have purchased 4 annuities, in anticipation of retiring in January, 2024.
    Annuities, like the Reverse Mortgage, are often disparaged by financial advisors. Why? Because they can't earn 1%-2% Assets Under Management Fees (AUM) on these two products.
    I am "practicing what I have been preaching" for the past 15 years, and any advisor who recommends avoiding Reverse Mortgages or Annuities is not acting in your best interests...Period.
    Continued success with your excellent efforts in the Reverse Mortgage Field.
    Reply to Kevin
    - Michael Branson
      September 3rd, 2023
      
      Thank you Kevin,
      
      I wish I had some great wisdom about the servicing that would eliminate all the issues, but unfortunately, I do not. Hopefully, the lender will get their act together or sell the servicing to someone else who does! I would caution that leaving a $100 balance is cutting it a bit thin for most folks.
      
      It sounds like you have an excellent handle on the numbers, but if someone who wasn't as detail oriented as you miscalculated the remaining balance after the prepayment and, instead of leaving a balance of $100.00, paid the balance in full, the lender would accept that payment as payment in full, close the loan and reconvey the security instrument.
      The loan would not remain open with a zero balance. We usually recommend to most people to leave a balance owing of at least $500 on the line just so there are no missteps and an accidental payment in full if they intend to keep the loan active, but as I said, it sounds like you have a very good handle on it.
      Reply to Michael
Arthur J.
March 8th, 2023

Are there limits on how much money I am allowed to contribute to my loan balance with "VOLUNTARY PREPAYMENTS" without paying off the LOAN PRINCIPAL in its entirety?
Reply to Arthur
- Michael Branson
  March 14th, 2023
  
  Hello Arthur,
  
  There is never a prepayment penalty with a reverse mortgage, and you can pay any amount up to and including payment in full at any time you wish. If you do pay all amounts owing though, the loan is closed, and the lender would issue a reconveyance in full. You cannot keep the loan open with a zero (0) balance.
  If you want to keep the loan open but want to pay it down substantially, you will need to be sure to keep a small balance on the loan so that the lender did not close the loan. With a balance on the loan, the interest you would accrue would be negligible and it would keep your loan active and your Principal Limit growing on the unused portion of the loan in case you needed the funds later.
  Reply to Michael
Vicki Anderson
June 27th, 2022

A few weeks ago, I used the ARLO Calculator and it gave me a two column comparison. Today I used the calculator again and it told me I don't have enough equity. Why would it change? I was excited to use your company because numerous companies won't qualify you with less than 50% equity, but ARLO did. I owe $199,000 on my home and it's worth about 350,000.
Please advise. Thank you!
Reply to Vicki
- Michael Branson
  June 30th, 2022
  
  Hello Vicki,
  One of the factors that determines the amount you receive from a reverse mortgage is the interest rate. I'm sorry to say that rates are on the rise. During the time period you reference, the Fed raised rates by a very stout .75%. If rates continue to rise the amount you receive will be even less but if they dip, you could get more again. The loan amount is based on the expected rate which is locked for 120 days from date of application so keep your eyes on the market, watch our site and if it improves you can move quickly if you are ready next time. HUD allows a one-time float down at loan closing so if the rates are lower when you go to closing, you can always float down but if they are higher you would have at least locked in your principal limit already at the lower rate.
  Reply to Michael
Elizabeth T.
May 2nd, 2022

If my home is appraised at $1,000,000 is there a minimum amount I need to borrow? I would like to borrow $100,000
Reply to Elizabeth
- Michael Branson
  May 2nd, 2022
  
  Hello Elizabeth,
  
  You are in luck! With a reverse mortgage, you receive a benefit amount based on your age, property value and interest rates in effect that for a property valued at your property's value would be well over $100,000, but you do not have to take any funds you do not wish to draw.
  You can take only the $100,000 and leave the remaining funds in a line of credit that if you never use, you never accrue any interest on and so there is no charge to you to have them available to you. And if for any reason you do need them at some point in the future (you need a home repair, wish to take a vacation, need a medical procedure or any reason you want), the funds are there for you. And that line of credit grows as long as you do not use the funds.
  
  What I mean by the line grows is that the amount available to you increases over time. It is not earning interest; you have not borrowed it so it is not accruing interest either. It is more like an increase in your credit line that is guaranteed and so if you go for years without using the line of credit but later you do need the funds for an unexpected expense, there would be more there available to you than when you first opened the line of credit.
  You would begin to accrue interest on any funds you do borrow, but there are no interest charges on any funds you do not use. You and your heirs do not have to pay back any funds in the line of credit that you did not use (either the original line or the growth). We would love to show you how the reverse mortgage program would work for you.
  Reply to Michael
Steve W.
April 24th, 2022

I'm still unclear about how closing costs are handled on a reverse mortgage. Are they an initial drawl on the loan? This is often not cited in online information. Also please discuss disaster damage. There is usually a difference between property insurance home value ratings and market value ratings. What happens if your home is destroyed in a disaster?
Thank you.
Reply to Steve
- Michael Branson
  May 2nd, 2022
  
  Hello Steve,
  
  Most closing costs are paid from the close of the loan as an initial draw of the loan. There are a few costs that must be paid when the services are rendered which include the appraisal and the counseling.
  The lender may never pay the counseling fee for the borrower but there can be different provisions agreed to at times with regard to the appraisal. You should talk to your lender to see if there is a possibility of them financing your appraisal cost or any portion of it for you if that is something you are interested in.
  
  Borrowers are required to carry sufficient hazard insurance to repair or replace the improvements located at the premises. Like every loan (forward or reverse), if the improvements are unable to be rebuilt, the insurance proceeds would go first to repayment of outstanding loan amount.
  Reply to Michael
Carolyn
September 17th, 2021

My elderly neighbor would like to sell me her home. She is in a HECM with a $102k total loan balance, of which about $53k is a line of credit balance. Her available LOC is $5.75. She would like me to satisfy (pay off) the loan as the sale price. Am I understanding correctly that the price I should pay is either the $102k or 95% or the market value, whichever is less? Any balance on the loan, if the home value less, would be covered by her insurance, correct?
What if the home value is more than $102k? Comps have sold for about $15-20k over that amount. In this case, I would still pay only that total loan balance, correct? It could be quite a "deal" to buy the house below market by paying off her loan as the payment, if I'm understanding correctly.
Also, this home has a potential homeowner's claim in the works due to storm damage. Should I wait until her claim is settled to step in? What happens if she sells the house before the claim is settled? Do I receive the benefits of that claim to repair damages? Or should I make sure the damage is fixed in advance so that the value of the home is higher when I buy?
Reply to Carolyn
- Michael Branson
  September 22nd, 2021
  
  Hello Carolyn,
  
  The agreement by HUD to accept 95% of the current market value is between the heirs of the borrower and HUD when the borrower passes, and the heirs want to keep the home, but the current loan balance is higher than the home's value. In that case, HUD allows the heirs to pay off the loan in full at an amount equal to the outstanding balance or 95% of the current market value of the property, whichever is less.
  If the value is greater than the amount owed, then obviously paying off the balance owed would be a better deal for the heirs or the borrower than 95% of the current market value so if the value is greater than the amount owed, they would only be required to pay the amount owed and anything above and beyond that amount belongs to the borrower, their estate or their heirs depending on the circumstances.
  
  The owner can sell you her property now for any amount she wishes but the loan would need to be repaid. There is no provision for HUD to accept 95% of the outstanding balance for this sale, especially if the current value is higher than the amount owed. If the value of the home was less than the outstanding balance, the owner could contact the servicer and request approval for a short payoff of the loan on a sale if they had to leave the home and the lender could contact HUD, but approval is not guaranteed, and it is a lengthy process.
  
  About any storm damage and insurance payments, I really cannot advise you. I know I would not close personally expecting an insurance company to pay me on someone else's policy and I don't know what the chances of collecting on a claim after the property sells and that policy may no longer be in force so you may want to really research that with the insurance company before you make any decisions there.
  For myself, I would want to be sure that all repairs were completed, the insurance funds had been paid and all contractors had been paid (no chance of liens) if I was at all concerned about the nature or the extent of the damage. But as you say, that may drive up her selling price so that is something you need to research and decide for yourself.
  Reply to Michael
Glenn T.
August 5th, 2021

I advise people on financial matters (recently took on new position) and I am a fan of the Reverse Mortgage HECM. So, here's my unanswered question which I have tried to find on the Internet-maybe you can
help:
What happens if a retiree has built up a large accessible balance in their HECM, which let's assume is greater than the value of their home, and they see the end is near. So, they elect to take all available funds out of the HECM but pass away before they move to another facility. Will the estate then seek to settle the balance of the loan upon death hence take away from the assets or does the home alone settle the unpaid balance? If they DO move before passing away and give the property back to the FHA and KEEP the funds they withdrew, is there then a look back period of so many months that the estate will claim? Thanks ahead of time for your attention to this. Glenn
Reply to Glenn
- Michael Branson
  August 10th, 2021
  
  Hello Glenn,
  The reason for the growth rate in the line of credit is because HUD makes the loan equal for all borrowers. In other words, a borrower who borrows the funds and accrues interest for 20 years could owe the same amount as a borrower who didn't borrow any of the funds until the 20th year but then borrowed all the funds available at that time.
  The growth rate is equal to the interest plus MIP accrual so both borrowers have equal opportunity and therefore both loans carry the same risk. And since the loan is non-recourse for one, it is non-recourse for both. In other words, regardless of how and when you take the funds, you or your heirs owe only the outstanding balance or the value of the home, whichever is less when the borrower passes, and the heirs settle the estate.
  Not only would they not have to repay funds, but they have the choice of selling the home and keeping any equity if the home is worth more than the amount owed, walking away and owing nothing if there is no equity and/or they do not wish to settle the property by letting the lender take the home to pay off the loan or paying off the loan and keeping the house by paying either the current balance of the loan or 95% of the current market value of the property, whichever is less.
  Neither the borrower who took all the reverse mortgage proceeds and accrued interest for 20 years nor the borrower who drew all their funds in the final year of their lives are required to make any special restitution or repayment of funds other than those options regardless of what the home is worth at the conclusion.
  I am not sure about what you mean by the "look back" period, and I cannot give legal or accounting advice if you are referring to any possible tax ramifications. To determine what accounting treatments the estate needs to consider, you really need to speak with an accountant or a tax attorney.
  Not only am I forbidden by licensing law to give any tax or legal advice, but tax laws also change, and I would not want to give anyone the wrong information so I would encourage you to speak to an estate accounting specialist to get that sort of information.
  Reply to Michael
Bill
July 17th, 2021

If I have 100K HECM total line of credit, and have no immediate plan to use the money. What is the carrying cost in keeping the credit line open?
Reply to Bill
- Michael Branson
  July 24th, 2021
  
  Hello Bill,
  
  There is no cost on the unused funds. You do not accrue interest or MIP cost on any funds you are not using. In addition, the line of credit grows at a rate equal to the interest plus the MIP renewal on the unused balance.
  So, for example, if you do not use the $100,000 and your interest and MIP total 3%, then at the end of the year, your line of credit available would be $103,000 and then the growth in the next year would be calculated based on the $103,000 balance and the interest rate plus MIP renewal rate in effect for that year.
  It is important to note that this is not interest anyone is paying to you. It isn't the same as if you had this money in a bank account accruing interest. It is an increase in the funds you have available to borrow and if you never use them, you never accrue interest on them. If you do need them later, they are there for you to use. Think of it as a credit line increase because it is not money earned.
  Just as if you had a credit card with a $10,000 line of credit and the bank increased the line to $15,000, there would be more money available to you, but they didn't just give you $5,000.
  The limit increase means you would not owe any more unless you borrowed it but if you do borrow it, then you would begin to accrue interest on the money you borrow at that time.
  Reply to Michael
  - Donald G.
    July 25th, 2021
    
    What is MIP cost?
    Reply to Donald
  - Donald George
    July 25th, 2021
    
    What are the costs in % to set up if I take no money at closing?
    Reply to Donald
    - Michael Branson
      August 2nd, 2021
      
      Hello Donald,
      
      The MIP or Mortgage Insurance Premium is broken into two areas. There is the Up-Front MIP (UFMIP) which is 2% of the appraised value or the HUD maximum lending limit, whichever is less and the renewal that is .5% of the outstanding balance monthly. So if your home is valued at $250,000, the UFMIP that would be added to the balance at closing would be $5,000 - it is not paid out of pocket.
      The renewal premium is based on the outstanding balance so if you began your loan with a balance of $25,000, the monthly renewal would be $125.00. The UFMIP is paid one time based on the appraised value or the lending limit and the monthly renewal amount would change as the balance changes.
      Reply to Michael
      - Donald George
        August 22nd, 2021
        
        "So if you began your loan with a balance of $25,000" This loan balance is 20k withdrawal plus the 5k that was financed?
        Reply to Donald
  - Lee B.
    July 30th, 2021
    
    Arlo if I should live so long that all of my equity is gone, and the insurance is engaged what happens to the line of credit? You know arlo I have had this reverse for over ten years now and I have refinanced a couple of times and talked to a lot of people in the business and was always told it was my money not my money to barrow. So, in all that time this is the first time I have known that. I have never used any of the money.
    Reply to Lee
    - Michael Branson
      August 2nd, 2021
      
      Hello Lee,
      I cannot speak for how others explain the credit line grown rate, but we make sure we are very clear about what it is and what it isn't.
      The growth in the line of credit is not interest you are earning, and it is not money anyone is paying to you. It is money that is being made available for you to borrow later if you need it.
      I tell everyone to think of it like a credit card that has an increase in the credit limit. If you never use it, you never owe it and you never accrued any interest on it.
      However, if you do need it at some point in the future, it is nice to know that the money is there for you to borrow, and you only begin to accrue interest at the time you borrow it and on the funds you actually borrow.
      So in your case, if you never used any of it, you and your heirs don't have to repay any of it when you pay the loan off and it never cost you anything because you did not accrue any interest owed.
      If at some point later you need more money, that money is there for you and then just the amount you borrow would be added to the amount owed and you would accrue interest only on the funds you borrowed from the time you borrowed them.
      Reply to Michael
Heather B.
May 4th, 2021

Tremendously concerned about my siblings wanting to do a reverse mortgage on our mothers mom. The reverse mortgage equity line is incredible; however, she is currently not living there, and it all sounds extremely risky. I would prefer to sell the home and take the loss of the cap gains to give my mother the peace of financial freedom and unneeded worry about her children handling her financial affairs. Advice needed please. Thank you!
Reply to Heather
- Michael Branson
  May 4th, 2021
  
  Hello Heather,
  
  I am sorry, but I do not think I can be of too much help here except to tell you that if mom is not living in the property, she is not eligible for the loan anyway. The borrower must be living in the home as their primary residence at the time of application and must continue to occupy the home as their primary residence after the loan closes or the lender will call the loan due and payable and that would endanger mom's equity if she did not have the resources to pay off the reverse mortgage and could not sell the home quickly enough at that time.
  About whether mom should get the loan at all if she is living in the home, every situation is different, and the loan is right for some people and not others. I would never give you a blanket statement that the loan would be great or bad for your mom with just the information I have nor would I recommend that your siblings handle her affairs or that you do whatever is needed to relieve them of that task - I simply do not know mom's situation or your siblings or their abilities and the circumstances.
  If mom does return to the home and you are all considering a reverse mortgage, perhaps you should all consult a financial adviser together giving you all the same opportunity to voice your concerns and ask questions so that you can all hear the same answers/explanations at the same time?
  Reply to Michael
Casey
April 5th, 2021

We have a Mother we want to move to assisted living. She has a reverse mortgage with a Current Principal Limit of $294,000 and loan balance of $292,000. What would be the maximum lump sum disbursement we could take out? If we take out the maximum do we need to sale the property at that time or give to FHA? Thanks so much for your help.
Reply to Casey
- Michael Branson
  April 7th, 2021
  
  Hello Casey,
  I would need to see her current statement to determine how much money she still has available based on the terms of her original loan and any additional funds she received as a result of the growth of the credit line.
  Her statement should show the Remaining Principal Limit which would be funds available to her and if she has had the loan longer than 12 months, there are no restrictions as to when she takes a distribution of any or all of the funds.
  I will warn you though that if you sign or have her sign anything saying she is living in the property and withdraw funds from the loan falsely, that would be a fraudulent action after she moved out and the lender or HUD could take steps to retrieve funds obtained in this manner.
  What you should do though is contact a local real estate professional and let them tell you what the home would sell for in today's market.
  If you sell the home, you can put the money into the bank to be used to care for mom in the future so if there is equity available in the home and you need to have mom move anyway, the sooner you sell the home and pay the loan off, the sooner the interest stops accruing and the more money you have available from the sale of the home.
  Reply to Michael
Thomas F.
January 11th, 2021

I have run your calculator and it shows $34,625-year 1 line of credit and 44,197 at year 10 on HECM Annual If I want to establish a line of credit with $0 draw for 10 years and I want to pay the loan amount down by $680 monthly. What would be my line of credit available?
Reply to Thomas
- Michael Branson
  January 11th, 2021
  
  Hello Thomas,
  
  I am sorry, but I do not have enough information to give you an answer, but I can tell you this - the line of credit grows annually in the unused portion of the line. That is the reason your balance would be higher after 10 years of not utilizing the line.
  If you were to pull no funds from the line available and you paid down the principal balance, then you would have even more money available on the line as the amount that is growing would be based on a percentage of a higher balance.
  This in addition to the fact that the rate by which it grows is equal to the current interest rate plus the mortgage insurance renewal premium (.50%), means that the growth rate will vary as interest rates fall and rise.
  
  We have developed our own proprietary amortization schedule that allows you to put in different interest rate scenarios as well as different draws and repayments and it will then show you the balance and the credit line growth of the loan over time.
  It would require you to plug in the amounts you want to pay or draw annually as well as what interest rate scenarios for which you would like to see results if you would like to "play" with those numbers but since there is no one answer for what rates will be in 10 years, there is no one answer for your question.
  Also, the generic, HUD-type calculator you used to get the results in 10 years for the line of credit balance uses just the initial expected rate and so it is to be used for comparison purposes only. Since the rate is not fixed for the term of the loan, those numbers are likely to change after the first 12 months and can be wildly different at the end of 10 years based on current market rates throughout that time.
  The growth rate is higher the higher the market rates are for the index on the loan. In the current rate environment, the lines are not growing rapidly with such low interest rates but that may not be the case in years to come.
  Reply to Michael
Gloria B.
March 16th, 2020

Hi I have a reverse mortgage and want to know if I don't use all the funds what happens at death?
Reply to Gloria
- Michael Branson
  March 16th, 2020
  
  Hi Gloria,
  
  The loan has a maximum amount available to you and if you never borrow the maximum amount, then any funds left unborrowed would not need to be repaid by your heirs or your estate when you passed or if you decide to sell the home or moved.
  For example, if you have a loan available of $100,000 but you only used $40,000, your family will only have to repay the $40,000 plus any interest that accrued on that amount, not the entire $100,000.
  This is equity in your home that you never borrowed against even though the funds were available to you. Think of it like having a credit card with a $10,000 line available that you only use $5,000 of the line. You only have to repay the amount you actually use plus any interest.
  Reply to Michael
  - Walter T.
    July 25th, 2020
    
    Hi ARLO,
    I have a reverse mortgage just about a year old in August. If I add money to my line of credit, as I understand it, I can make my same % of growth on the funds I added as well.
    For example, if I put in $100,000 into the line, I would make my same interest rate, (Approx. 4%), on those funds. I can withdraw anytime, correct? So, it is better than a money market fund paying 1%, right. Well way better as there are no taxes due on the growth, correct?
    Finally, if I need personal deductions, I am told I can recapture my interest buy paying in that amount, say $16,000 and then with drawing it generating a 1098 interest paid form.
    Thanks, Walter
    Reply to Walter
    - Michael Branson
      July 27th, 2020
      
      Hi Walter,
      
      Please do not make the same mistake that I see some others making regarding the growth rate on the line of credit. If you pay down the balance, yes, the line will grow on the line of credit available to you at a greater rate but that is not interest you are earning.
      Think of it more like an increase to your credit line giving you greater borrowing power, not interest income.
      Here are terms that might make it more understandable.
      If you have a credit card that has a $50,000 maximum and you keep a balance of $25,000 on it but then pay off the $25,000 and the credit card company now increases your limit to $100,000, you have more credit available to you but they didn't give you $50,000. If you borrow the money, you still must repay it.
      There are also advantages in that you no longer accrue the interest on the balance that you carried so there is some savings, but it is not income. Although you are no longer paying or accruing interest on the $25,000 balance you carried all along if you repay it, if you borrow the money again, you will begin accruing interest on any new amount you borrow.
      
      This is how your reverse mortgage works as well. If you have a principal limit of $200,000 and a balance of $100,000, you are accruing interest on the $100,000 you have borrowed and your line of credit is growing on the funds you have not borrowed at a rate equal to the interest plus the MIP renewal.
      If that is roughly 4% at this time on your loan, at the end of one year you would have $104,000 available to you. You did not earn $4,000 in interest; you just received a credit line increase with greater borrowing power.
      If you pay off the majority of the $100,000 you owe, your line would grow on the entire unused or repaid portion of the line as well but again, this is greater borrowing power, not interest earned (and if you ever repay the loan to a 0 balance, the loan is paid in full and closed so remember to keep a small balance on the line at all times if you want to keep the loan open).
      Another advantage to repaying a portion of the line is that you only accrue interest on the balance you owe so if you do repay some of the outstanding balance, your loan will accrue interest slower and you will retain your equity longer if that is important to you.
      
      About taxation, you must contact an accountant for this information as we cannot give tax or legal advice.
      Reply to Michael
Bob P.
December 6th, 2019

I currently have an adjustable HECM with a loan balance of $350 K and a LOC of $70 K. As I understand it, if I make a prepayment, the load balance goes down and the LOC will go up by the same amount. In the future if interest rates go up, say to 6% and they are higher than other saving instruments (e.g. CD), would it make sense to make a prepayment to the HECM with any excess funds I have versus putting the excess funds in a low interest rate CD? It appears this would give me more funds to access in the future.
Reply to Bob
- Michael Branson
  December 14th, 2019
  
  Hello Bob,
  
  You should discuss this with a financial planner or your accountant. I can tell you that yes, that scenario would give you more funds available on your reverse mortgage and you would accrue less interest on the funds that you do actually borrow, but you are not "earning interest" on the line growth.
  The growth in the line gives you more money available to borrow while any money you have in a bank or other interest-bearing account is money you earned and therefore, income to you. They question becomes what your goal and which option is works best for you. And for that, I would refer you to a trust financial advisor to discuss your goals and needs to determine your best plan of action.
  Reply to Michael
Sergio S.
November 20th, 2019

Would it be possible to let the line of credit grow and at a future date make a tenure payment with a portion of the line of credit while you still maintain a growing line of credit with the remaining portion?
Reply to Sergio
- Michael Branson
  November 20th, 2019
  
  Hello Sergio,
  
  That is exactly the way the program works. You can change the payout method at any time and that would be changing to a Modified Tenure or Modified Term wherein you would either have a portion of the line available at that time used for a payment for life and then payment amount would be determined by the amount of the line you used for that purpose and the calculation for a payment under the HUD parameters.
  If you chose the Modified Term, you could choose whatever payment amount you wished and the payment would continue for as long as funds were still available at that level and then they would cease if you used all funds in this manner.
  The loan would still remain active and you would still not have to make a payment if you chose a payment that would cease before you moved out but you could exhaust the funds available if you choose a higher payment than would be available under the tenure option that would last for life (as long as you live in the home and continue to pay the taxes and insurance).
  Reply to Michael
Michael K.
November 11th, 2019

I have a variable rate reverse mortgage with a line of credit I have not accessed. If I paid down my mortgage balance say by $50,000, do I receive an increase in my line of credit equal to what I paid down?
Reply to Michael
- Michael Branson
  November 11th, 2019
  
  Hello Michael,
  
  If you have a line of credit, you can repay any or all the loan at any time without penalty. You can reborrow on the line as long as you do not pay the line down to a 0 balance because at that point the loan would be paid in full and closed (you cannot keep the loan open with a 0 balance).
  The other good thing about paying down the balance is that the line of credit grows on the unused portion of the line.
  For example, if you pay the balance down to $50,000 and your total line available at that point is $100,000, your line of credit will grow on the $100,000 available at a rate equal to the interest plus the annual mortgage insurance premium (MIP).
  If your rate is 3.5% and your MIP is 1.25%, your line of credit will grow by 4.75%. That $100,000 after a year would be $104,750 and then that would grow by the rate plus MIP on that balance in the next year (assuming you did not take any draws of course).
  
  This is not interest you are earning on the funds; it is an increase in your line of credit. It is more money being made available to you if you want it later. If you never borrow the funds, they never have to be repaid (by you or your estate).
  If you do need them though, they are there for you later. If you do borrow the money, whatever you do borrow is added to your loan balance. You can think of it like a credit card when the bank raises your limit.
  If you never spend on the increased limit, you don't owe the money but if you do, you would owe more later if you sold the home or at the time your heirs settled the estate.
  Reply to Michael
Diana H.
October 28th, 2019

How do you access your line of credit from a reverse mortgage?
Reply to Diana
- Michael Branson
  October 28th, 2019
  
  Hello Diana,
  
  You can request an advance from your line with a signed, written request by mail or by fax, but it has to be a signed request so that the servicer knows that the request is coming from you and not someone else. And then the funds can be sent to you as a check made payable to all parties on the loan or as a wire transfer to the account already set up when the loan was closed. Again, this keeps anyone else from accessing your funds.
  Reply to Michael
Dennis G.
October 27th, 2019

My question is regards to "payments DUE" or to become DUE by requests for future advances on you credit line Reverse Mtg. What if your loan type is an open line of credit and when the lender goes under (or files bankruptcy) nothing is "DUE" as you do not have a pending UNSCHEDULED ADVANCE REQUEST in place, but have $300,000 still in your available credit line [Total Funds Available].
Is HUD obligated to honor future UNSCHEDULED ADVANCE REQUESTS on the line OR only pay you open Advance Requests not yet paid out? Another way to ask the question is are Total Funds Available on open credit line reverse mortgage loans when the lender goes under DUE the borrower even if not yet requested to be paid out, so HUD has to honor the contract and make the UNSCHEDULED ADVANCE REQUESTS in the future?
Reply to Dennis
- Michael Branson
  October 27th, 2019
  
  Hello Dennis,
  
  If a lender should go out of business (and filing for Bankruptcy protection does not necessarily take the lender out of business) the loans would be sold to another lender since they are an asset that the first lender owns.
  All loans would be honored in accordance with the terms in the instruments. If the current lender had something happen that was so catastrophic so that it could not take time to sell the assets, HUD would take over the loan in accordance with the original agreements and either service them by their contract servicer or possibly also sell them/assign them to a new lender.
  At any rate, you do have insurance from HUD that the loans will always be available to you as outlined in your original documents and agreements, not just any pending requests for payment at the time the lender became insolvent.
  Reply to Michael
Austin P.
October 15th, 2019

What percentage of the appraised value of my home can I get in total line of credit? (Youngest owner being 67 years old)
Reply to Austin
- Michael Branson
  October 15th, 2019
  
  Hi Austin,
  
  I am afraid that is a question that is not as straightforward as it may seem. There are other factors as well that go into the equation such as the value of the home in relation to the HUD lending limit, interest rates, amounts available at closing and after the first 12 months based on the amount you currently owe on the property and even the costs in your area.
  The best thing you can do is to visit our LOC calculator where you can request an instant proposal that will take all this information into account and give you all the pertinent information.
  You do not have to give us your social security number or even your exact birthdate (just use the month and year and any day and the quote will be accurate) and you can decide if you want to give us your email or not if you do not want us to contact you -it's all up to you.
  But at least this way you will have all the information including amounts available, when and the costs. Give it a try, it's free, it's accurate and there is no obligation.
  Reply to Michael
Sharron
October 11th, 2019

Can you do a reverse mortgage for a line of credit and still pay the insurance and taxes without an LESA as well as paying some of the mortgage back too? Only because it appears the interest on an HECM is less than a HELOC and the requirements appears not to be as strict.
Reply to Sharron
- Michael Branson
  October 11th, 2019
  
  The only time a LESA (Life Expectancy Set Aside to pay taxes and insurance) is required is if you do not meet HUD's eligibility requirements in some way and then the underwriter would make it a requirement of the loan. Otherwise, the LESA is not automatically required and as a matter of fact, more loans are closed without LESA's than those that require them.
  If your income is adequate to meet the HUD financial assessment guidelines, you have paid your mortgage, taxes and insurance and any other property charges on time (HOA dues, etc.) and your other credit is generally sound, the chances are very good that you will not need a LESA.
  
  Since there is never a prepayment penalty with a reverse mortgage, you can use the loan like a Home Equity Line of Credit (HELOC), borrowing and repaying most of the balance and reborrowing as you wish. The one major difference that you need to keep in mind though is that if you wish to keep the loan in place, you can never pay the balance down to zero ($0.00) as that would close out the loan and you would no longer have a reverse mortgage at that point.
  Unlike a HELOC, the loan will not remain open with a -0- balance and so you always need to be sure to keep a small balance on the line if you wish to keep the loan open. And if you do need a LESA, it's still not the end of the world and would not hurt your plans. The funds would be set aside from the line to pay for the installments of taxes and insurance as they come due and do not accrue interest until actually paid by the lender. You can still make the principal reduction at that point.
  The only difference would be that the lender would be paying the taxes and insurance when they are due, and you could still make the payment back to the line of credit to pay down the balance if that was your desire. It would cut into the amount available to you (funds set aside are not available to the borrower to draw), but there is no additional cost for the LESA and as stated, they only accrue interest once used to pay your installments of taxes and insurance.
  If you repay this amount after paid by the lender, you are not accruing interest as the funds do not remain outstanding on your line.
  Reply to Michael
Ronald a C.
September 23rd, 2019

Is the gain on the line of credit each month taxable?
Reply to Ronald
- Michael Branson
  September 23rd, 2019
  
  Hello Ronald,
  
  The increase available on the line is not taxable because it is not income. This is not any money that anyone is paying to you, it is an increase in the line of credit available to you.
  You are not earning interest, the amount available for you to borrow increases, you are not being paid an income. If you borrow those funds, you will accrue interest on them and if you never borrow them, you (or your heirs) never have to repay them but the credit line growth should never be mistaken for income or money being paid to you.
  Reply to Michael
Dick S.
September 4th, 2019

A couple with mixed family took out a reverse mortgage with a line of credit. After the initial draw the husband passed away. Over the next few years the widow drew out the remaining LOC. After she passed away the property was sold with some equity remaining. Two sets of heirs are in conflict. The husband's heirs say they don't owe anything on the amount withdrawn after he died. Wife's heirs contend they both owe 1/2 since the LOC was part of the original loan and thus that amount is what was mortgaged. Who is correct?
Reply to Dick
- Michael Branson
  September 4th, 2019
  
  Hi Dick,
  
  Good question and one unfortunately for which I have no answer! This is a legal question regarding the rights and obligations of heirs. Different states have different rules regarding heirship, whether the state is considered community property and I couldn't begin to know those rules or how the property was acquired or in what manner the title was held.
  Therefore probate courts exist. I can't possibly tell you how the courts would look at it and although I have my thoughts on the matter, not being licensed to give legal advice those thoughts will not be expressed here.
  Reply to Michael
KENNETH ARDIZZONE
June 13th, 2019

Hi Arlo- You have not replied to my question posted August 28, 2018. Thanks for response.
Reply to KENNETH
Caryn
May 1st, 2019

I am the executrix of my mother's estate. She had a reverse mortgage on her home when she died. My question is what happens to the remaining line of credit that was available for her to draw out?
Reply to Caryn
- Michael Branson
  May 1st, 2019
  
  We are asked this question often. The reverse mortgage line of credit is just like a Home Equity Line of Credit (HELOC) or even a credit card in this regard. Borrowers' heirs do not receive any additional funds from the line of credit after the borrower passes, but they also do not have to repay any funds that were never borrowed.
  Her balance owed on her monthly statement does not include any funds that were still available to her in the line of credit. Therefore, the money that was available to her on the line but she never borrowed is not included in the amount she owes on the loan now and does not need to be repaid. She never received it so it is not owed.
  
  To make a very simple illustration, suppose you had a reverse mortgage line of credit of $100,000 but only had a balance of $50,000 on the loan when you passed which would leave a line of credit still available at that time of $50,000. Let's just say the house is worth $200,000.
  Your heirs do not owe $100,000 for the entire line, only the $50,000 that represents the amount that was borrowed and is shown as the balance (which in this simple example includes accrued interest). Since the other $50,000 in the line was never borrowed, it does not have to be repaid.
  Therefore, the heirs would receive the entire $150,000 in remaining equity with the house. Just like a HELOC or a credit card, if you don't spend up to your line you don't owe the money but there is nothing "left over" to distribute to anyone just because you were not at your maximum on the line when you passed.
  Reply to Michael
Patricia C.
April 1st, 2019

I paid down my reverse mortgage line of credit, except approximately $1,000. I now want to ask for a draw of all in my account except $1000. I came into cash, used part to pay off my reverse mortgage, but left $1000 still owed, and I have now earned around $28,000 of growth on my money. Can I make a draw, again, still owing $1000, of all my current line of credit, then next month say to my servicing company I want to deed in lieu my home over to the Reverse Mortgage Company? How long can the stall before finalizing this? I have bought a small High rise, as this reverse mortgaged home is on 4 levels and difficulty for me, as I am now 78?
Reply to Patricia
- Michael Branson
  April 1st, 2019
  
  Hello Patricia,
  
  I'm afraid I cannot really answer this question. I can tell you that you certainly can make a withdrawal of funds any time you wish. However, about the rest of the question, you really need to speak to your servicing company, and I would also suggest you contact a tax accountant or tax attorney.
  You have many protections built into the reverse mortgage for non-recourse if the loan balance ever exceeds the value of the home so that it is a non-recourse loan. However, I honestly cannot sit here and tell you that if you plan a full draw and foreclosure (and a Deed in Lieu of Foreclosure is considered the same by most including on your credit) might not have other implications. A voluntary Deed in Lieu when a borrower voluntarily moves from the property after buying other real estate may be treated differently than a borrower who leaves a home to live in an assisted living facility and is not buying other property and I do not want to give you bad information.
  
  For example, I do know that you would be ineligible for any future government loan programs for as long as any shortfall or loss to HUD existing on this loan. I do not know if that extends to any other government programs. I did touch on the fact that the Deed in Lieu i.e. foreclosure would be reported to your credit. And I honestly do not know if there are any tax ramifications for a voluntary Deed in Lieu with a loss to the lender/HUD for which you might become liable with your federal and state taxes. I do believe you receive a tax form with the loss appearing (much like a W-2) which they report, but I cannot say for sure. You would have to verify with the servicer. You would have to speak to your tax specialist to determine the overall tax liability.
  
  Have you checked on the salability and value of your current home? My advice would be to sell the home if possible, to save yourself all the negative effects of the Deed in Lieu process. There are many online services such as Redfin and Zillow that now offer very low real estate commissions. I know there are many more and you are not limited to just these options. It might be worth the time to at least investigate them to avoid the repercussions that would come with the voluntary Deed in Lieu.
  Reply to Michael
Johnny A.
March 28th, 2019

If I want to get a reverse mortgage until I can touch my thrift savings to pay off the reverse mortgage, would anyone lend me the money? I would pay off the loan in about 2 years. Are should I not even mention something like this and get the loan anyway. My question is, is there a penalty for paying off a loan early?
Reply to Johnny
- Michael Branson
  March 28th, 2019
  
  Hello Johnny,
  
  The reverse mortgage is not an inexpensive loan with the upfront HUD costs and the normal fees associated with obtaining new financing. I do not recommend using the loan for short term goals because the cost of the financing is simply too expensive to be a "bridge" type solution in most cases.
  Some borrowers have no choice and know that they will be using the loan, not as the last loan they will ever need as intended, but as a shorter term until other funds become available. There is no prepayment penalty on a reverse mortgage, and you can repay the loan in part or in full at any time without penalty. But I would encourage you to look at other less costly options such as a line of credit if this is only a temporary need.
  
  Having said all that, if you do determine this is the correct way to proceed, I would also make an additional suggestion. Don't pay your line of credit off completely in two years. Keep a small balance on the line of just a couple hundred dollars to keep the loan open. The interest that would accrue on that balance is minimal but if you pay the loan down to zero ($), the line would be closed, and you would no longer be able to use it even if you wanted to.
  If the line is still open, the available line grows and the amount available to you later increases. There is no additional cost to keep it open other than the very small interest that accrues on whatever balance you carry and if you never end up needing that line later, it cost you next to nothing to have a guaranteed line of credit available for as long as you own your home that is available to you for any reason you choose.
  If you never use it, you never accrue interest on the unused portion of the line and there is no additional cost to leaving it open. But if you do decide you need additional financing for any reason later, you already have the line in place, and you would avoid incurring any additional costs at that time.
  Reply to Michael
Deborah E.
March 19th, 2019

If a co borrower is 100 years old, should we take out the remaining line of credit? The reverse mortgage was taken out 2 years ago.
Reply to Deborah
- Michael Branson
  March 19th, 2019
  
  Hello Deborah,
  
  The available line of credit is valid if at least one borrower remains living in the home as their primary residence. If one of the borrowers on the loan is 100 years old, that does not tell me the age of any other borrowers on the loan or the needs you may have. I know there are additional borrowers by your usage of the term "co-borrower". There is no need to withdraw the rest of your funds due to the age of the borrower though. If you need those funds for some reason, you can withdraw them at any time.
  If you do not, you would only be accruing interest that you owe on money that you are not using. The interest that you owe accrues faster than you would earn if you just put them into a bank account so it's not a money-making proposition to take the funds just to put them into an account. Besides, any funds you do not borrow, you do not have to pay back when you repay the loan (either the borrowers or the heirs by refinancing the loan or selling the property).
  
  If you have need of the funds or if you have no heirs and are never planning on repaying the loan in any case, then It might not make as big a difference if you take the funds now or wait. If you take the funds or not in that case might not make any difference in the repayment conditions later and may make a difference in your lifestyle now, but that is entirely up to you.
  My own advice would be to hold off but only because you never know what future needs might be and especially if there is a younger co-borrower, you want to be sure they are adequate to fund both your lifetime needs. It's always a good idea to have funds available but the funds are yours to use as you see fit.
  Reply to Michael
KENNETH ARDIZZONE
August 28th, 2018

As of today my reverse mortgage equity line of credit is $250,000 and growing at a rate of 6% monthly. If I never used the funds in 25 years my line of credit has grown to $1,105,424. Let's say my house 25 years from now is worth $600,000, can I withdraw the full $1,105,424 and give to my heirs and pass away later. After my death the bank takes my property and my kids owe nothing. Correct?
Reply to KENNETH
Randy
June 29th, 2018

Can a credit line or payment plan be on a fixed rate reverse?
Reply to Randy
- Michael Branson
  June 29th, 2018
  
  Hi Randy,
  HUD and the agencies that issue the mortgage backed securities for the HECM product have determined the risk to lenders and the securities backed by the loans is too great with a line that grows if it would be on a fixed rate. The amount available to the borrower increases and there is no way to hedge the future interest rate risk on the growing funds. Some of the lines increase substantially over the years and if rates also increase but lenders and HUD are locked into providing funds at rates that are no longer available, it could cause them to default and endanger the program.
  Since the fixed rate is a one time full draw, the loans can be hedged and sold before rates can present a risk to the fund.
  Reply to Michael
Ralph M. Palmer
June 20th, 2018

I have contacted several lenders. Still confused. My new home cost approx 240k. Current HEMC H4P lender is asking approx 150K at closing. HEMC loan balance then approx 90k. Am I paying/accruing interest for this 90K loan that I will have to repay at some point? Do I only receive an increase in my Line of Credit on the 90K loan balance? Should I never pay down the 90K outstanding loan balance. What happens if I do pay off the 90k outstanding balance? Would I then receive no increase in my Line of Credit and would the line be closed in it's entirety?
Reply to Ralph
- Michael Branson
  June 20th, 2018
  
  Hi Ralph,
  
  The thing you have to remember with line of credit growth is that the line only grows on the unused portion of the line. If you are using the reverse mortgage to purchase a property, you are using the entire line to purchase the home and therefore, there would be nothing left to experience any growth. You are correct that you accrue interest on the portion of the funds that you borrow (in your example, the $90K that you used to buy your home). The amount that you or your heirs would have to repay at some point would be the $90,000 plus any interest and MIP that accrued on this balance minus any payments you make before then.
  
  I say minus any payments you make before then because you talk about paying down or paying off the balance. Although there is no payment due on the loan for as long as you live in the home as your principal residence and do not default on the loan (you pay your taxes and insurance when due), you can make any payment of any amount up to and including payment in full at any time without penalty. Some borrowers choose to pay payments to keep the balance from rising, others need tax deductions and choose to make payments so that they can deduct interest paid (speak to your tax professional to determine what you can and cannot deduct and what would and would not help you). Still others just want to reduce their debt and pay down the balance even though they are not required to do so. The reverse mortgage may not require you to make payments but it is a very versatile loan and gives you the option to do whatever you wish to meet your goals.
  
  Now let's circle back around to the line of credit growth. As I stated, it only grows on the unused portion. If you do pay down a portion of your line after using the entire line at closing, the line that becomes available will also begin to grow at the stated growth rate. You asked about paying it off entirely and I'm glad you did. Unlike a Home Equity Line of Credit Loan, if you ever pay your line down to a $00.00 balance, the loan would be closed and no additional draws would be available. You cannot keep the loan open with a Zero balance. Therefore, if you think you want to keep the line open and continue to benefit from the growth of the line, be sure to keep a small balance on the line and do not pay it in full.
  Reply to Michael
John
May 21st, 2018

Is it true that as long as the holder of a reverse mortgage satisfies the requirements of the mortgage upkeep, taxes, etc., the line of credit will grow as long as the holder remains in the house.
Reply to John
- Michael Branson
  May 21st, 2018
  
  Hi John!
  
  The line of credit does grow on the unused portion of the line only. In other words, as long as there is money left available, the amount left available will grow at a rate equal to the interest plus the MIP accrual rate. So if you have a line of credit of $200,000 and you use $100,000 of it leaving you a balance available of $100,000, the $100,000 will grow at a rate equal to the interest rate plus the MIP accrual rate and then the next year the amount that will grow will be based on the new balance that would be higher if you did not take any of the funds out due to the growth in the line. This will continue for as long as the loan remains in good standing (and yes, that would require you to live in the property as your primary residence, pay the taxes and insurance in a timely manner and reasonable maintain the home).
  Reply to Michael
Dale Cochran
January 11th, 2018

We need some repairs on our home and would prefer to get a small short-term loan for the repairs instead of borrowing from our reverse mortgage line of credit, but it looks like our reverse mortgage loan amount is for almost the entire market value of our home. Therefore, I imagine we won't have much chance of being approved for a regular home equity loan for the small amount of the repairs. Is that correct?
Reply to Dale
- Michael Branson
  January 23rd, 2018
  
  Hi Dale,
  
  Most reverse mortgage lenders do not like to go behind a reverse mortgage due to the fact that the loan balance can grow. Did you know you can make payments on a reverse mortgage? Although there are no payments due, you can pay any amount at any time up to and including payment in full with no penalty. If you did borrow from the reverse mortgage, you can pay it back down just as you would any other loan.
  Reply to Michael
Alice H.
August 28th, 2017

Just have one question. If we take out a reverse mortgage and take it out as a line of credit. Will the interest be charged on the full amount of the line of credit or just the portion of the line of credit as we draw from it?

Thanks for your response
Reply to Alice
- Michael Branson
  August 28th, 2017
  
  Hi Alice,
  
  You accrue interest on just the outstanding balance which consists of the funds you borrow plus any fees you incur to obtain the loan that are financed, any mortgage insurance premium that you accrue and is added to the balance and the as the balance grows, the interest you accrue will also grow. But you never accrue interest on the funds you do not borrow.
  Reply to Michael
Claudia
July 19th, 2017

What is the responsibility of the lender to the borrower in terms of responding to a request for available funds from the line of credit? Does the lender have the right to question the borrower? What if a request is made while the borrower is alive but the request is not received or responded to until after the person has died? Is the lender required to respond respond to the borrower or borrower's family in writing if a request for funds is denied? what happens if a written respond is not given? How is a lien against the property handled if the family surrenders the property?
Reply to Claudia
- Michael Branson
  July 19th, 2017
  
  Hi Claudia,
  
  I'm sorry but I really can't answer your questions due to their vagueness or because they are of a legal nature and would require an attorney in the area. For example, under the terms of the reverse mortgage, the lender does have only certain times to get the borrower funds but the borrower must be occupying the property.
  Due to the nature of the question, it appears that there may have been questions regarding the request for funds. I don't know the time frames involved, whether or not the borrower was still living in the property as their primary residence, but if funds were being requested and the lender had information that the borrower no longer occupied the home the lender would investigate.
  
  And when you talk about a lien and how it would affect things if the property is "surrendered", that would also depend on the circumstances. The lien would presumably be filed after the lender's Deed (the Deed for a reverse mortgage must go into first lien position) and therefore, the lender probably would not be able to take a Deed in Lieu of foreclosure if there are other liens if the title is not clear.
  That means the lender would not allow a Deed in Lieu of Foreclosure or a property to be "surrendered" and would have to opt for a foreclosure action providing you do not intend to retain the home and pay off the loan as the heirs. The reason for this is because if the lender were to accept title with a lien from another creditor, the lender becomes obligated for that lien as well.
  However, if the lender takes the home as the first lien holder through a foreclosure action, then all subsequent lien-holders would have to either bid at the foreclosure sale to protect their position on that lien, or their liens would not be satisfied unless a bidder paid more for the property than was owed to the reverse mortgage lender at the foreclosure sale and the final bid was enough to also pay off their lien.
  With regard to the creditor's rights to seek repayment, I cannot answer that question and you really should seek legal counsel to be sure you have the correct information.
  Reply to Michael
Jacquelin
June 19th, 2017

Hello! My grandmother did her reverse mortgage last year and she's asking me for help but I don't know much about it. If she takes all of the money out of her line of credit, is she going to have to repay it? She also wants to know if she can transfer the line of credit to another bank?
Any help would be appreciated!
Reply to Jacquelin
- Michael Branson
  June 19th, 2017
  
  Hi Jackie,
  The line of credit is a loan, so eventually she or the estate will pay the money back. If she takes the funds out of the line only to put the money into a bank account, then she is paying interest on funds she is not using and receiving much less interest on the money she has in the bank. A far better plan would probably be to only use the funds as she needs them and then she only accrues interest on the money she is actually using. This way, she does not accrue interest on money she does not need and the money will always be there for her when she does need it.
  Also, the line of credit has a growth feature that allows the amount available to grow over time on the unused portion. If she borrows the entire line just to put into another account, there is nothing left on the line to grow so in addition to accruing interest on funds she is not using, she does not get the benefit of the growth on the line. It actually hurts her in two ways to pull the funds out if she doesn't need them.
  Reply to Michael
Sandra crews
April 6th, 2017

If my parents have a line of credit reverse mortgage and they have 50,000 left in the account. When they die what happens to that 50,000. I understand that it is just money they never borrowed but say their home is now only worth 60,000 and we don't wish to go through the hassle of trying to sell it and paying commissions etc. can we withdraw that 50,000 thousand and let the bank take the property?
Reply to Sandra
- Michael Branson
  April 6th, 2017
  
  Hi Sandra,
  Only borrowers on the loan (presumably your parents) can withdraw money from the reverse mortgage line of credit. You are correct though that if the money is never borrowed it does not have to be repaid and the estate goes to the heirs. But you should look at unused money on a line of credit just like you would on a Home Equity Line of Credit or a credit card, if your parents did not use it, it is not available for the family to use after they pass. The purpose of the reverse mortgage is for homeowners over the age of 62 to be able to age in place, its intent is not to buy the remaining equity out from heirs who do not wish to "go through the hassle" of settling their parents affairs after they pass.
  Reply to Michael
Helen
March 24th, 2017

If I die and I still have untapped money in my line of credit, where does this equity money go?
Reply to Helen
- Michael Branson
  March 24th, 2017
  
  Hello Hellen,
  
  If you still have money available on the line of credit, that means the money was never borrowed and does not need to be repaid. Think of it like a credit card with a line that you never used. If you had a credit card with a $10,000 line that you never borrowed, it is not owed and your estate would not have to repay it at your time of death. That $10,000 line of credit for the credit card didn't "go" anywhere, it just wasn't owed because it was never borrowed even though it was available to you.
  
  The line of credit only accrues interest on the funds you actually borrow and that amount is all that is due when you sell the home or pass. If you have a line of credit for $100,000 but you only ever used $50,000 of it and the house is worth $200,000, the other $50,000 of unused line of credit "goes" nowhere but it also does not have to be repaid so the remaining $150,000 equity in the home belongs to you at sale or your heirs at time of passing. The other $50,000 in the line didn't go anywhere but it also didn't count against the property's equity either.
  Reply to Michael
Jeff M
February 16th, 2017

I currently have a HECM LOC with an available balance of $70k. I want to sell some stocks i have, can I add the funds from the stock liquidation to my HECM LOC?
Reply to Jeff
- Michael Branson
  February 16th, 2017
  
  Hi Jeff,
  I think I understand your question to ask can you pay down the line with the money you receive from the stocks which is absolutely yes, you can pay down any portion of your line at any time up to and including payment in full with no penalty. The one thing you have to remember, if you ever pay the balance down to 0, then the line will be closed, it will not remain open with a zero balance.
  Reply to Michael
KENNETH ARDIZZONE
January 24th, 2017

Line of credit growth rate on reverse mortgages too good to be true. I need to take advantage of this financial tool before it expires. I just turned 62 and my house is paid off and worth $465000. Will banks eventually eliminate growth rate in the future on reverse mortgages?
Reply to KENNETH
- Michael Branson
  January 24th, 2017
  
  Hi Kenneth,
  
  It has been a feature on the line and will continue to be. The idea behind the growth rate is that you either borrow the money and accrue the interest or you do not borrow the funds and then the line grows in availability by the same amount as the borrower who had borrowed those funds. Either way, the risk to HUD on the loan is the same. Therefore, there is no reason to eliminate the growth feature as it mirrors the reverse mortgage itself.
  
  During those times when HUD perceives unacceptable risk to the program, they make adjustments to the amounts available to the borrower by cutting the available Principal Limits. The line of credit growth feature is no different than the loan itself and therefore, requires no independent modification.
  Reply to Michael
Judy
August 30th, 2016

have a line of credit (we took out a reverse mtg) we've never used any of it but someone told me to take it out before we passed (if our health was failing) because the interest would not be used towards loan and we would lose all of the interest. is this true?
Reply to Judy
- Michael Branson
  August 30th, 2016
  
  Hi Judy,
  You have been given bad information. Firstly, the growth on the line of credit is additional borrowing power you have if you need it, it is not interest anyone is paying to you. There is nothing to "lose" if you never use it, it's just money you never borrowed and therefore you don't owe it either. If you do borrow it, then the amount is added to your balance.
  Too many people have the wrong conception on the line of credit and the growth of that line. People call that growth "interest", but you don't have money in an account that is accruing any interest so it's not the same. It's just money you haven't borrowed yet. You have a growth feature on the line of credit that simply allows you to borrow more money later if you need it.
  The growth rate is what keeps all loans equal. For example, for argument's sake, let's assume you and another borrower both have a growth rate of 5% on a credit line of $100,000. The other borrower borrows all the money available and you borrow none, keeping your line available of $100,000 while the other borrower now has no line available and a balance owing of $100,000. The growth rate is equal to the interest accrual rate plus the mortgage insurance renewal rate (for this example, those two total 5%).
  So at the end of the year, the other borrower owes $105,000 on that line. They have no available funds but now with your growth rate, you have $105,000 available to you. This keeps the risk on the two loans equal. Since you didn't borrow any of the $100,000 you had available and therefore did not accrue the $5,000 interest that the other borrower did, this amount of money is now available for you to borrow if you need or want to in addition to the $100,000 you started with.
  But no one paid you any interest. If you borrow that $105,000 in the next year, you will accrue interest on the entire amount. If you do not ever borrow the funds, you don't lose anything because funds you don't borrow are never owed, do not accrue any interest and then you or your heirs have that much more equity in the home when you sell it later.
  Reply to Michael
Sandy
June 24th, 2016

Can I pay the monthly interest on the principal borrowed and can I claim those interest payments on my tax returns?
Reply to Sandy
- Michael Branson
  June 24th, 2016
  
  Hi Sandy,
  The reverse mortgage is a loan just like any other loan. You can make repayments on the loan at any time you wish, in any amount you wish without penalty, up to and including payment in full.
  The documents are very specific about the order in which the payments will be applied so you need to be certain that you read the loan documents as you cannot simply "direct" how your payment is applied.
  And finally, most mortgage interest is deductible but there are always certain caveats to that as well (alternative minimum tax in some situations for one) and I am not an accountant and certainly not familiar with your circumstances so while the easy answer would be to say yes, I can only recommend that you seek guidance on the deductibility in your case from an accountant or tax professional.
  Reply to Michael
JIM DAVIDSON
June 1st, 2016

I JUST SENT AN E-MAIL ABOUT WHAT IF I DID NOT TAKE ANY OF MY $300,000 FUNDS FOR 5 YEARS WHAT WOULD I HAVE. ALSO IF I PASSED AWAY IN 5 YEARS WHAT WOULD MY ESTATE RECOVER FROM THIS. THANK YOU SO MUCH
Reply to JIM
- Michael Branson
  June 1st, 2016
  
  Hi Jim,
  As a follow up, you and your estate always own the property and your heirs have the choice to keep the home by paying off the loan with a refinance loan or with other funds available to them or to sell the property and to keep the equity. The heirs don't "recover" anything from the reverse mortgage, but they also don't have to pay back anything that was never borrowed nor does interest accrue on funds that were never borrowed. If you went 5 years and passed before you ever used the line of credit, the heirs could not use the line at that time but they would have the property and all the equity (which if your available line is $300,000, before any appreciation would have to be close to $550,000 or more depending on your age). As the property appreciates during that time, they would also benefit from that gain in value. Even if you did start to use the funds, they would still have the property minus the amount owed.
  Reply to Michael
JIM DAVIDSON
June 1st, 2016

IF I TAKE A REVERSE MORTGAGE LINE OF CREDIT LOAN IN THE AMOUNT OF $300,000 AND DO NOT TAKE ANY FUNDS FOR 5 YEARS WHAT FUNDS WOULD BE AVAILABLE AT THAT TIME.
Reply to JIM
- Michael Branson
  June 1st, 2016
  
  Hi Jim,
  The line of credit grows on the unused portion of the line at a rate equal to the interest accrual rate plus the MIP accrual rate. The MIP accrual rate is 1.25% so the line of credit grow rate will also depend on two other variables, the margin you receive and the interest rates in effect during that five year period.
  For ease of calculation, we will just use two options for this example, one higher and one lower margin. If we use the 3.25% margin for our higher option, you will receive a higher growth rate but will also accrue interest at a higher rate once you do start borrowing money than with, say, a 2.00% margin. In 5 years, if rates did not change, with the 3.25% margin you would have about $400,987 available line of credit. In 10 years, the line would grow to $535,969. That same line with a margin of 2.00% would grow to an available line of $376,794 in 5 years and $473,246 in 10 years.
  These numbers would change with fluctuating interest rates, but the higher margin will always grow at a faster rate than the lower margin (and will always accrue more interest on the borrowed funds once you do start borrowing on the line). You have to determine which option best meets your goals. Another resource we have available to borrowers is an amortization schedule we have developed for borrowers that allows them to input and change scenarios so that they can run their own limitless number of "what if's".
  You can see what happens when rates go up or down, when you take a draw or multiple draws or even if you make repayments (remember, payments are never required on a reverse mortgage but you can make one at any time up to and including payment in full with no prepayment penalty).
  Reply to Michael
Joel
May 26th, 2016

Just so I understand correctly: My current outstanding mortgage balance, 1st & HELOC, is about $380K. The home's current value is about $1.05M. Built in 1886, the house really needs a new foundation, estimated to be about $120K. With this program, can I establish the Reverse LOC, have the foundation done, live here the rest of our lives, and still not need to make any payments? Based, of course, on being granted a large enough line of available credit.
Reply to Joel
- Michael Branson
  May 27th, 2016
  
  Hi Joel,
  
  You actually have several issues all tied into this one question that can make the answer go either way. Firstly, any existing loans you now have would have to be paid in full with the reverse mortgage proceeds. So the majority or all of the reverse mortgage proceeds would be used just to pay off your existing loans. There would be little, if any money left for you to use in the form of a line of credit.
  
  But if you didn't have existing loan balances that would exhaust your entire reverse mortgage benefits, the next issue would be the foundation. If the work is such that it is something you would like to do but not something that an appraiser or underwriter identified as necessary work as a condition of the loan, then the work would typically have to be done before you could close the loan for such an issue.
  Some work can be done after the close and the lender can put funds aside to ensure the payment of the invoice, but there is a limit to the amount and which items HUD will allow for this purpose. If the foundation were bad enough for the appraiser or underwriter to require the repair as a condition of the loan, I would have to believe it would be bad enough to be required prior to the close (not to mention that the amount of $125,000 is above the amount that would be allowed to be set aside for repairs).
  
  But yes, if you were able to make the repairs to the foundation and you wanted to pay off the existing loans so that you had no more payments on the home, you could live there for the rest of your lives with no mortgage payment with the reverse mortgage.
  Reply to Michael
  - Joel
    May 27th, 2016
    
    Thank you for the clarification.
    Reply to Joel
Kathleen M.
January 5th, 2016

If I am just interested in setting up a line of credit, how much cash would I have to take for an initial draw ? A company that I looked into said I would have to take at least $50,000 cash to start the loan.
-Kathleen M.
Reply to Kathleen
- Michael Branson
  January 5th, 2016
  
  Hi Kathleen,
  
  I'm going to take a stab here and guess that they were telling you that if you wanted a reduction in the fees they charge, then you would have to take a minimum draw. If that is not the case, run do not walk away from that company! There is no minimum draw you must take on the loan. Lenders may be willing to discount their fees based on the income they can make up elsewhere when they sell the loan, etc.
  That usually requires a minimum draw to be able to waive fees. If you are just being told that you have to take a minimum draw though, or are being told this with a full origination fee that is not an honest answer and you should seek other quotes.
  Reply to Michael
mary
May 7th, 2015

can i add funds to my reverse mrtg line of credit that i withdrew?
Reply to mary
- Michael Branson
  May 7th, 2015
  
  While there is no payment due on a reverse mortgage, you can make a payment of all or part of the outstanding balance at any time without penalty. As long as you have a line of credit and not a fixed rate or closed-ended reverse mortgage loan, you would then be able to re-borrow any eligible funds at a later date.
  In speaking with Ryan LaRose, the head of Celink (the premier reverse mortgage servicer in the industry) I caution you though, if you pay the balance in full, unlike a bank HELOC, the loan would be closed with a zero balance. If you intend to keep the loan open, be sure to leave at least a small balance on the line.
  Reply to Michael
Ken Rider
July 7th, 2014

If I take out a line of credit of $100,000 and withdraw $5000, do I immediately start making monthly payments plus interest?
Reply to Ken
- Michael Branson
  July 8th, 2014
  
  Hi Ken,
  With the reverse mortgage, you are not required to make monthly payments for as long as you live in your home. Yes, you do begin to accrue interest, but only on the funds you actually use. So you may have a line of credit available for $100,000, but if you only use $5,000 of the line, you will only accrue interest on that portion of the line, not the entire $100,000.
  The line will grow at a rate equal to the interest plus the mortgage insurance renewal, or roughly 4% at this time (depending on your index and margin). Which means that in the first year, depending on when you take the funds, the line will grow by almost $4,000 so the line available to you would not decrease by a large amount under the scenario you outlined. It's important that you understand that the growth is not interest you earn on the unused portion, it's just more money that is made available to you and if you do wind up borrowing it later, you would begin to accrue interest on any portion you did borrow, but the longer you keep a balance available to yourself, the more that balance would grow for later use.
  Reply to Michael
Moonbeam
August 6th, 2013

What if there was an available line of credit, and the borrower passes away 3 days before the check arrives? Does that amount need to go back to the Mortgage Company? Or, can the check be deposited for repairs to the home so the family can sale it with-in the allotted time provided by the Mortgage Company?
Reply to Moonbeam
- Michael Branson
  August 12th, 2013
  
  There are no further draws available after the borrower passes but you really are in a gray area here. It would obviously be a violation of the terms of the mortgage (and a fraudulent act) for a family member to request funds on the mortgage after the borrower passed. In that case, the lender could initiate action including legal actions to recover funds. But that is not what we have here. The borrower was alive at the time the funds were requested and so there was no attempt to defraud.
  But since the funds are not received by the borrower, those funds would most likely be requested back by the lender when/if they became aware of the circumstances. How aggressively they would pursue the return of the funds would probably depend on the lender, the amount of the draw, whether or not the property already had the equity depleted, etc. I would say that to avoid any possible aggressive recovery efforts or other potential repercussions, the funds should not be chased and the check should be returned, but I cannot tell you for certain what would happen.
  Reply to Michael
Greg H
August 3rd, 2013

The credit line grows at amount equal to the the interest rate. Correct? Does it grow based on the entire loan or only on the undrawn portion? Thanks
Reply to Greg
- Michael Branson
  August 5th, 2013
  
  Hi Greg,
  You are almost correct - it is the interest and the MIP (right now that is around 4%). It only grows on the unused portion so if your line starts at $200,000 and you draw $100,000 of the available funds, then the credit line will grow at about 4% for the first year on the remaining $100,000 as long as you did not use any more of the funds.
  Reply to Michael
Don C.
August 16th, 2012

This entire scenario is totally different from what I had been led to understand about what a reverse mortgage is.
Am I applying for both a loan, and a line of credit? Where does the possibility of any cash equity affect me?
What I had been told was: This is to be a simple transferral of my home to the company, with no further mortgage payments from me for the rest of my life. Upon my passing, you assume full ownership of the property. Am I too simple and naive in my understanding and explanation?
I remain interested and confused.
Don Carroll
Reply to Don
- Michael Branson
  August 16th, 2012
  
  Hello Don,
  Great question and I've answered in a new blog post "Who Owns My Home? -Reverse Mortgages Explained"
  Feel free to call 800-565-1722 and I would be happy assist you further. Thanks!
  Reply to Michael
gloria s mayorga
July 4th, 2012

I would like to have a face to face counseling in my native language:Spanish.
Reply to gloria
David
May 22nd, 2012

In doing a line of credit are you able to access your money right then like a debit card or does it take a few days to access your money and how does that work.
Reply to David
- Michael Branson
  May 22nd, 2012
  
  Hi David,
  You must request the funds each time you want a draw. This is to ensure that the lender is only allowing additional draws while the borrowers still meet the parameters of the Security Agreement and that additional draws are not given after the last remaining borrower passes or permanently moves from the home. Other than that, the lender must send the funds to you within 5 days of the request.
  Most lenders and borrowers choose to have the additional draws paid to the borrower as a direct deposit to the borrower's pre-designated checking or savings account. This works very well, especially with larger draws as a wire to the account is quick (most borrowers we've spoken to usually receive their draws within just a couple of days from their request) and a wire transfer is the same as a cash deposit so there is never a hold placed on the funds with this type of deposit.
  You just need to remember that it often takes lenders a while to set the account up initially in the servicing department (due to the fact that some lenders use contract or outside servicers) and have it ready for the first draw from the line, other than the draw borrowers can take at funding. Therefore, if you think you will need to request funds from the line in the first 30 - 45 days, it may be better to take those funds as a cash advance when you close your loan. If it turns out you do not need the money later, you can always pay it back without penalty at any time but then you would not be caught short while the loan was being set up for future draws.
  Reply to Michael
Kred
May 7th, 2012

Thank you for very interesting analysis. I must say that I analyze the changes in the reverse mortgage market for couple of years in many countries and it's very clear that this niche becomes more and more popular. This it not strange in western populations, where the aging of the society continues and speeds up. In my opinion, because of increasing impact on the banking system, this can result in new and innovative models of reverse mortgages in the future.
Reply to Kred
Mike Woods
April 11th, 2012

I would be interested in knowing whether face-to-face counseling is still required under the FHA reverse mortgage program.
Reply to Mike

Calculate Your Reverse Mortgage

See How a Reverse Mortgage Line of Credit Works for You

ARLO™

Let’s see how a reverse mortgage could work for you. Nearly 1 million homeowners nationwide currently have a reverse mortgage, and many use it simply to eliminate monthly payments and create long-term flexibility in retirement.

Great! It looks like your home value estimate is about

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The minimum qualifying age for a reverse mortgage is 55

Your Personalized Reverse Mortgage Summary

Reverse Mortgage Line of Credit & Growth Rate Explained

Reverse Mortgage Line of Credit: Why It’s the Most Popular Option

Why So Many Homeowners Choose the Line of Credit

Why Flexibility Matters

How Interest Works With a Reverse Mortgage Line of Credit

Why Fixed-Rate Reverse Mortgages Are More Limited

Benefits and Federal Protections of a Reverse Mortgage Line of Credit

Understanding the Reverse Mortgage Line of Credit Growth Feature

Example of How the Line of Credit Can Grow Over Time

Here’s what that looks like:

Estimated Line of Credit Growth Over Time

Reverse Mortgage Line of Credit Compared to a Traditional HELOC

2026 Reverse Mortgage Line of Credit vs. HELOC: Which Fits You?

Line of Credit FAQs

What is a HECM line of credit?

Which is better, a home equity line of credit or a reverse mortgage?

How does a reverse mortgage line of credit grow?

If you already have a reverse mortgage, can you get a Home Equity Line of Credit (HELOC)?

How is the interest charged on a reverse mortgage line of credit?

Determining Whether This Option Fits Your Plans

Have a Question About Reverse Mortgages?

Over 2000 of your questions answered by ARLO™
Ask your question now!

Leave a Reply to This Article

Calculate Your Reverse Mortgage

See How a Reverse Mortgage Line of Credit Works for You

ARLO™

Let’s see how a reverse mortgage could work for you. Nearly 1 million homeowners nationwide currently have a reverse mortgage, and many use it simply to eliminate monthly payments and create long-term flexibility in retirement.

Great! It looks like your home value estimate is about

Please provide your estimated home value

The minimum qualifying age for a reverse mortgage is 55

Your Personalized Reverse Mortgage Summary

Reverse Mortgage Line of Credit: Why It’s the Most Popular Option

Why So Many Homeowners Choose the Line of Credit

Why Flexibility Matters

How Interest Works With a Reverse Mortgage Line of Credit

Why Fixed-Rate Reverse Mortgages Are More Limited

Benefits and Federal Protections of a Reverse Mortgage Line of Credit

Understanding the Reverse Mortgage Line of Credit Growth Feature

Example of How the Line of Credit Can Grow Over Time

Here’s what that looks like:

Estimated Line of Credit Growth Over Time

Reverse Mortgage Line of Credit Compared to a Traditional HELOC

2026 Reverse Mortgage Line of Credit vs. HELOC: Which Fits You?

Line of Credit FAQs

What is a HECM line of credit?

Which is better, a home equity line of credit or a reverse mortgage?

How does a reverse mortgage line of credit grow?

If you already have a reverse mortgage, can you get a Home Equity Line of Credit (HELOC)?

How is the interest charged on a reverse mortgage line of credit?

Determining Whether This Option Fits Your Plans

Have a Question About Reverse Mortgages?

Over 2000 of your questions answered by ARLO™ Ask your question now!

Leave a Reply to This Article

Over 2000 of your questions answered by ARLO™
Ask your question now!