12/9/2019 How the Reverse Mortgage Line of Credit Growth Rate Works

REVERSE MORTGAGE GLOSSARY

Reverse Mortgage Line of Credit Growth Rate

Updated April 3, 2019. The reverse mortgage line of credit growth rate is the annual rate of
increase applied to the variable-rate HECM credit line. In other words, the available money
in the credit line automatically increases over time based on the annual growth rate.

The growth rate is calculated by adding the initial interest rate (IIR) to the annual MIP rate.
For example, if the IIR is 4.50% and the MIP rate is 0.50% (which it is, as of this writing),
then the growth rate on the available credit line would be 5.00%.

What is the growth rate today?

The growth rate will vary from day to day depending on market conditions and the lender
you’re working with. However, it’s possible to calculate an estimate of the growth rate
based on the market conditions today.

If you would like to calculate an estimate of today’s growth rate, feel free to check out
our reverse mortgage calculator. The growth rate will equal the total rate (IIR + MIP) listed
near the top of the Calculation Results on page 6.

How the reverse mortgage line of credit growth rate works

The line of credit on a variable-rate HECM can be a hugely powerful financial tool. This is
especially true if your home is free and clear (or very nearly so) and you don’t need the
money right now.

If you owe little to nothing on your home, you can maximize the starting size of the line of
credit. There’s little or no mortgage to pay off, so more proceeds will be available to leave
in the credit line and earn growth.

https://www.myhecm.com/reverse-mortgage-glossary/reverse-mortgage-line-of-credit-growth-rate 1/2
12/9/2019 How the Reverse Mortgage Line of Credit Growth Rate Works

If you don’t need the money right now, you can leave the line of credit untouched and
maximize the growth over the coming years. By the time you actually need the cash, you’ll
have a lot of more to work with.

The line of credit is guaranteed to grow with no limit as long as at least one borrower is
paying the required property charges and living in the home.

A growth rate example

To see how the growth rate works, let’s look at an example. Let’s assume you qualify for an
available credit line starting at $150,000 and the current annual reverse mortgage line of
credit growth rate is 5%. Let’s also assume you leave the line of credit completely
untouched for 15 years.

As you can see in the table, the growth adds up to a lot of dollars over time! In year 15, you
could pull out over $300,000 tax free with zero mortgage payments required. Pretty cool,
eh?

Note that growth compounds on growth. This is why it’s important to get the line of credit
set up as soon as possible – even if you don’t need the money. You want to take advantage
of compounding over time to maximize what you get out of the reverse mortgage.

Again, as long as you uphold your end of the bargain, the line of credit is always
guaranteed to grow.  It could even outgrow the value of your home! If that happens, you’ve
officially beat the system! The HECM is a non-recourse loan, which means the most that

https://www.myhecm.com/reverse-mortgage-glossary/reverse-mortgage-line-of-credit-growth-rate 2/2