Reverse Mortgage in Action – Credit Line Growth

One of the lesser know features of a reverse mortgage that is not available on a forward home equity line of credit (HELOC) is the credit line growth feature.

The FHA reverse mortgage (HECM) allows your available credit line to increase every month at the same rate as the interest rate plus the MIP (.50% annually). This allows you more borrowing power in the future.

Imagine this scenario: The borrower is 62 years old and owns a home valued of $750,000 and has a small mortgage of $125,000. After the mortgage and closing costs are paid, he has a credit line of $158,000. That may not sound great but his growth rate is 6.00% annually. That means when he is 85 years old, his available credit is almost $600,000.

The FHA insured HECM credit line cannot be reduced or frozen even if home values decrease. Whereas the HELOC can (and has) reduce or freeze your credit line if values decrease.

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