How a HECM line of credit grows
The unused part of an adjustable HECM credit line gets larger every month by the same rule that makes the loan balance grow, and the calculator shows how much room that adds over time.
Credit line after 10 years, unused
$229,234
Grows by 6.49 % a year (note rate + 0.5 % MIP), compounded monthly.
| After 1 year | $128,024 |
| After 5 years | $165,856 |
| After 15 years | $316,831 |
| After 20 years | $437,902 |
Growth is room to borrow, not interest paid to you; it stops when the loan becomes due.
| Note rate | After 10 years | After 20 years |
|---|---|---|
| 4.99 % | $207,522 | $358,880 |
| 5.99 % | $229,234 | $437,902 |
| 6.99 % | $253,196 | $534,235 |
Worked out by Radif Partners · How we calculate · factors read on hud.gov · not a loan offer
The unused part of a HECM line of credit grows each month by one twelfth of the note rate plus the 0.5 % annual mortgage insurance premium (MIP), because HUD makes the whole principal limit grow at that pace and the line is what remains of it after the balance and any set-asides. With a 1-year Treasury rate of 4.49 % and an example margin of 1.5 %, the note rate is 5.99 % and the line grows at 6.49 % a year, or 6.69 % once compounded monthly. A 72-year-old with a $450,000 home has a principal limit of $174,600; after the upfront MIP and the largest origination fee, $159,600 stays available as a line. Left untouched, it reaches about $304,881 after 10 years and $582,409 after 20, at an unchanged rate. That growth is extra room to borrow, not money earned: every dollar drawn later carries the same rate.
The growth rate written in HUD's rules
Federal regulations define the principal limit as the amount computed at closing from the age, the expected rate and the maximum claim amount, which then "increases each month thereafter at a rate equal to one-twelfth of the mortgage interest rate in effect at that time, plus one-twelfth of the annual mortgage insurance rate" (24 CFR 206.3). HUD's Handbook 4000.1 repeats the rule for adjustable loans, word for word on the rate. When a borrower keeps a line of credit, 24 CFR 206.25(g) splits the principal limit into a servicing set-aside, the line and the rest, and adds that "the line of credit amount increases at the same rate as the total principal limit".
So the rate of growth is not a feature a lender adds or a bonus for waiting. It is the loan's own cost: the note rate, which is an index plus the lender's margin, plus the 0.5 % premium FHA charges on the balance each year. Today that is 5.99 % + 0.5 % = 6.49 % a year, applied as 0.541 % each month. The figures below hold that rate constant, which a real adjustable loan will not do.
| Year | Age | Unused credit line | Principal limit | Loan balance |
|---|---|---|---|---|
| 1 | 73 | $170,272 | $186,275 | $16,003 |
| 2 | 74 | $181,657 | $198,730 | $17,073 |
| 3 | 75 | $193,804 | $212,018 | $18,215 |
| 5 | 77 | $220,588 | $241,320 | $20,732 |
| 8 | 80 | $267,862 | $293,037 | $25,175 |
| 10 | 82 | $304,881 | $333,535 | $28,654 |
| 12 | 84 | $347,016 | $379,631 | $32,614 |
| 15 | 87 | $421,385 | $460,989 | $39,604 |
| 20 | 92 | $582,409 | $637,147 | $54,738 |
| 25 | 97 | $804,965 | $880,620 | $75,655 |
| 30 | 102 | $1,112,566 | $1,217,131 | $104,564 |
The three columns grow at one pace. The balance here is only the financed costs, $15,000 at closing, and it compounds like the line. The line is the principal limit minus that balance, so after 30 years the gap between them has widened to $1,112,566 even though nobody touched the money.
Grow an unused line of your size
Credit line after 10 years, unused
$305,645
| After 1 year | $170,699 |
| After 5 years | $221,141 |
| After 15 years | $422,441 |
| After 20 years | $583,869 |
The first year limits the draw, not the growth
In the first 12 months you can draw at most the initial disbursement limit: 60 % of the principal limit, minus the costs paid at closing. In the example that leaves $89,760 available during year one and $69,840 that opens on the first anniversary of closing. The cap applies to what you can take, and the whole line keeps compounding during those months. A line that was $159,600 at closing is about $170,272 at the end of year one. The HUD payment plan form says its line 25 does not include the increase of the principal limit during the first 12 months, so the figure printed on that form is the closing value, before any of this growth.
Your own line at closing and later
Cash you can use in the first 12 months
$89,760
| Factor at age 72, 6.625 % | 0.388 |
| Maximum claim amount | $450,000 |
| Principal limit (line 1) | $174,600 |
| Upfront MIP, 2 % (line 3) | $9,000 |
What the growth is and what it is not
It is room. When you later ask for a draw, the lender must send it within five business days of your written request (24 CFR 206.27(b)(1)), and if it pays late, it owes you a late charge of 10 % of the amount, at most $500, under 206.25(j). No minimum draw can be imposed (206.25(k)), so a borrower can take small sums or none.
It is not savings. An unused line has no cash value, cannot be passed to heirs and stops when the loan becomes due and payable. It is not tied to the home's market value either: the principal limit compounds on its own, which is why the table shows a line above the $450,000 appraisal after enough years. Two brakes still apply. Under 206.19(h), no disbursement may push the balance above the maximum amount stated in the security instrument, and draws stop when the last borrower dies, sells or moves out.
It is not free either. A draw of $100,000 taken in year ten starts its own compounding at the same 6.49 %; after another ten years it has become a debt of $191,028. What the growth buys is the option of borrowing more later without a new application, at the price the loan already carries.
When the note rate moves
On an annual adjustable HECM, the rate can change once a year after the first 12 to 18 months, by no more than two points per adjustment and five points over the life of the loan (24 CFR 206.21). The line follows each change: a higher note rate makes it grow faster, and makes any money already borrowed grow faster by the same amount. The table compares one unused $100,000 line at four note rates.
| Note rate | Yearly growth | After 10 years | After 20 years | After 30 years |
|---|---|---|---|---|
| 4.99 % | 5.49 % | $172,935 | $299,067 | $517,192 |
| 5.99 % | 6.49 % | $191,028 | $364,918 | $697,097 |
| 6.99 % | 7.49 % | $210,997 | $445,196 | $939,349 |
| 7.99 % | 8.49 % | $233,033 | $543,045 | $1,265,475 |
The expected rate, which sets the principal limit at closing, uses the 10-year Treasury; the note rate, which drives growth after closing, uses the 1-year Treasury. Today those two indexes stand at 5.15 % and 4.49 %. A note rate that changes after closing never changes the factor read on the expected rate at closing; it only changes how fast the line and the balance grow from there. The rates page explains both indexes.
Changing your mind after year one
After the first 12 months, an adjustable-rate borrower may ask to recalculate the plan, switch to monthly payments or take any amount up to the principal limit minus the balance and set-asides (24 CFR 206.26). The lender may charge a fee for the change. A line can therefore turn into tenure or term payments later, and the payments are then sized on the larger line. To see how drawn money compounds, the loan balance page follows a borrowed sum year by year, and the first-year limit page details the cap on year-one draws.