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HECM Line of Credit Growth Rate
Owning your home is a great way to build long-term wealth. Those that are property owners and reach retirement age will also have access to reverse mortgages, which allow them to borrow against their home equity without having to make payments or pay taxes on the money borrowed. If you are going to take out a reverse mortgage, or a Home Equity Conversion Mortgage (HECM), there are several important factors and terms to understand. One important term to understand is the HECM line of credit growth rate.
HECM Line of Credit Growth Definition
The HECM line of credit growth rate is essentially the rate in which your principal limit will increase each year. The principal limit is effectively the committed balance of your reverse line of credit.
What is the HECM line of credit growth rate?
When you take out a HECM, you will have a certain amount of funds that can be borrowed. This will be determined based on the value of your home, your age, and other factors. After the first year, the maximum principal amount is required to grow at a rate similar to what your interest and mortgage insurance premium rate is. Your old principal amount will then increase by the HECM line of credit growth rate each year. The compound interest rate of this can then help your available principal balance increase quickly.
How Does a Reverse Mortgage Line of Credit Grow?
Ultimately, both the amount outstanding on the line of credit and the available principal will grow each year. For those that use the line of credit sparingly, this increase can help the available balance grow significantly from one year to the next.
What is the reverse mortgage line of credit growth rate today?
The growth rate for both your line of credit outstanding balance and the principal limit is based on current market conditions. In today’s low-interest-rate environment, the growth rate and interest rate you are charged are relatively low compared to prior periods. While the growth rate is lower, it is offset by the lower interest rates that you will have to pay or have added to your outstanding balance.
HECM line of credit growth rate example
As an example, assume a customer has an open line of credit of $100,000 and has borrowed $20,000 against it. In this scenario, they would have $80,000 available to borrowers. If the line of credit growth rate and interest rate were both 5%, starting the second year the principal limit would be $105,000 and their outstanding balance would be $21,000, assuming no payments were made. This would then provide $84,000 in availability. This growth will then continue each year going forward.
When you are looking for a reverse mortgage, speaking with someone that you can trust is very important. The team with GoodLife Reverse Mortgage is a great group to talk to. The team here can answer all of your questions and help to ensure you understand all of the advantages and complexities that come with a reverse mortgage.
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