One of the least understood features of a HECM is the line of credit. The unused part of the line grows over time, which can give you more borrowing power later. Here is how it works.
How the growth works
With a HECM line of credit, the amount you have not used grows each month at the same rate the loan balance would grow, which is the loan’s interest rate plus the ongoing FHA mortgage insurance rate. The more you leave untouched, the more room you have later.
This is not interest paid to you, and it is not money in an account. It is extra borrowing capacity.
Why people use it
- A standby fund for home repairs, medical bills or care
- Covering expenses in years when investments are down
- Delaying other income sources until a better time
- Peace of mind without paying interest on money you have not used
Protections
As long as you meet the loan terms, the lender cannot freeze, reduce or cancel a HECM line of credit, unlike many HELOCs. Interest is charged only on what you actually draw.
Common questions
Does an adjustable-rate HECM line of credit grow faster?
The growth rate follows the loan’s rate, so when rates rise, growth speeds up, and when rates fall, it slows.
Can I take a line of credit and monthly payments together?
Yes. A HECM can combine a line of credit with monthly payments or a lump sum.
Is the line of credit available with a fixed-rate HECM?
Generally no. Fixed-rate HECMs are usually single lump-sum loans. Line of credit options come with adjustable-rate HECMs.
Related: How it works · Who qualifies · Costs · For families · FAQ · Service areas
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