The Reverse Mortgage Line of Credit and Its Growth Feature

A reverse-mortgage line of credit is one of four payout shapes available under the federal HECM program. The borrower's principal limit is set up as a revolving credit line; the borrower draws funds when they want them, in any amount, with no required monthly repayment. The distinguishing mechanic is the growth feature: the unused portion of the credit line grows over time at the same rate the loan accrues interest. No home-equity line of credit on a forward mortgage has that feature. It is unique to the HECM (Consumer Financial Protection Bureau, Reverse Mortgages, 2024).

Last reviewed 2026-05-20

How does the growth feature work?

When a HECM borrower elects the line-of-credit payout, the lender sets up a credit line equal to the borrower's net principal limit at closing. As long as a portion of that line goes unused, the available credit balance increases month over month. The growth rate is the loan's current note rate plus the 0.5% annual FHA mortgage insurance premium. That is the same rate the drawn portion of the loan accrues at (HUD Handbook 4000.1, Section II.B.10).

Mechanically, the growth and the loan accrual are the same calculation applied to two different balances. The drawn balance grows because interest and MIP are added each month; the available credit line grows because the same rate is credited to the unused portion. The two numbers (what is borrowed and what is still available to borrow) both move upward at the same monthly pace, indexed to the loan's note rate. The growth is contractual, written into the federal loan note (HUD Mortgagee Letter 2017-12).

A worked example anchors the math. A 70-year-old borrower with a $500,000 home opens a HECM line of credit. After upfront costs, the net principal limit is roughly $189,500. Suppose the borrower draws nothing in year one and the loan's note rate plus MIP runs at 7.0% on an annual basis. After 12 months, the available credit line is roughly $203,000. After five years of zero draws at the same rate, it is roughly $265,000. After ten years, roughly $370,000. The growth compounds: each month's growth is applied to the already-grown balance.

Two things this growth is not. It is not interest paid to the borrower. The growth feature increases the borrower's capacity to borrow, not money the borrower owns. Nothing is deposited into a bank account. And it is not guaranteed at a fixed rate: the HECM line of credit is an adjustable-rate product, so the growth rate moves with the loan's index. If rates rise, both the drawn balance and the available line grow faster; if rates fall, both grow slower. The mechanism does not change. The pace does.

How do draws work?

Funds are drawn by request to the loan servicer. The standard methods are an ACH transfer to a bank account, a paper check, or in some servicing setups a debit-card pull. The borrower chooses the amount; the only limit is the current available credit balance.

There is a first-year cap. HUD limits HECM draws in the first 12 months after closing to 60% of the principal limit (with an exception for paying off a mandatory obligation such as an existing forward mortgage, which can push the first-year disbursement higher). The cap exists to prevent a structural pattern in which a borrower took a HECM, drew everything at closing, and immediately faced the maximum balance compounding from day one. After month 13, the cap disappears and the borrower can draw any remaining available balance at any pace (HUD Mortgagee Letter 2013-27).

Each draw reduces the available credit line by the amount drawn and adds that amount to the drawn balance. Both numbers then resume growing at the loan's note rate plus MIP. The borrower can also repay drawn amounts at any time without penalty; a repayment increases the available credit line by the amount paid back. A few borrowers use this feature deliberately: drawing during a market downturn to avoid selling investments at a loss, then repaying when conditions improve.

How does the line of credit compare to the other HECM payouts?

Four HECM payout shapes (HUD Handbook 4000.1, Section II.B.10):

| Payout | What it does | Rate type | Best use | |---|---|---|---| | Lump sum | A single fixed-rate disbursement at closing | Fixed | A specific large expense at closing (e.g., paying off a forward mortgage) | | Line of credit | Revolving credit with the growth feature | Adjustable | Reserve capacity for future or unknown needs | | Tenure | Fixed monthly payment for as long as a borrower lives in the home | Adjustable | Filling a recurring monthly income shortfall | | Term | Fixed monthly payment for a chosen number of years | Adjustable | Filling a defined-period income gap |

Combinations are permitted. A common pattern: a partial line of credit for emergency reserve plus a small monthly tenure payment for recurring income.

The line of credit is structurally the most flexible of the four. The borrower decides when, how much, and how often to draw, and the available balance compounds while unused. That flexibility is the case some financial planners make for opening a HECM line of credit early (at 62) and drawing late or never. The growth feature does work over a long horizon: a line opened at 62 and untouched at 80 has compounded for 18 years. Other planners argue against opening any reverse mortgage as a contingency the borrower may not need, because the upfront costs are real and the loan accrues even on the small first-month balance. Both positions exist in the literature. A HUD-approved counselor can walk through the comparison without selling either side.

When is the line of credit not the right mode?

The line of credit fits a borrower who wants reserve capacity. It fits less well in two situations.

First, when the borrower needs a known monthly income to fill a recurring shortfall. A tenure payment gives a fixed monthly amount for as long as a borrower lives in the home; that contractual certainty is the point. A line of credit drawn down by hand each month works mechanically but loses the contractual income floor.

Second, when the borrower has an immediate large expense (a roof, a medical bill, a forward-mortgage payoff) that consumes most of the principal limit at closing. A lump-sum HECM at a fixed rate locks the rate against future rate increases on the drawn balance. With a line of credit, the borrower can still draw the full available balance at closing, but the rate is adjustable; if rates rise, the balance grows faster than a fixed-rate lump sum would.

The choice is not advocacy. It is a match between the cash-flow shape the borrower needs and the payout shape that delivers it. The four HECM payout modes exist because the four needs exist.

What happens to the line of credit at loan maturity?

The line of credit closes when the loan becomes due: at the last surviving borrower's death, after a permanent move-out (more than 12 consecutive months out of the home), at a sale, or at a property-charge default (HUD Handbook 4000.1, Section II.B.9). At that point no further draws are possible. The drawn balance, plus accrued interest, plus accrued MIP, plus any servicing fees, becomes the payoff amount due. The mechanics of how that balance is calculated and paid off are covered in the pay-back guide.

The unused portion of the credit line (the available balance the borrower never drew) does not transfer to the estate or to heirs. It was a borrowing capacity, not an asset. At maturity, it simply ends.

For a side-by-side with the forward home-equity line of credit, see the HECM vs. HELOC guide.

Run the calculator →

FAQ