HECM Line of Credit:What Happens If You Make Payments?
See how voluntary monthly payments can affect your HECM loan balance and available line of credit over time.
On an adjustable-rate HECM, unused line-of-credit capacity grows at the current HECM rate plus the 0.50% annual FHA mortgage insurance premium. Voluntary payments can restore borrowing capacity, and that restored amount can then grow under the same formula.
Not for fixed-rate HECMs. Fixed-rate HECMs do not provide a reusable line of credit after partial repayment.
PRIVACY
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Build Your HECM Scenario
If you already have a HECM, use figures from your current servicer statement. If you’re exploring a HECM, enter estimates for the scenario you want to test.
Edit the white fields below to match the HECM you want to illustrate.
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Use the current HECM principal balance shown on the statement, or enter the proposed starting balance for the scenario you want to explore.
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Use the amount currently available to draw, or enter the proposed available line of credit for the scenario you want to explore.
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Use the current rate shown on your servicer statement, or enter the estimated rate for a HECM scenario you are considering.Your adjustable HECM rate is the index plus the loan’s margin.Do not add the 0.50% FHA MIP. The calculator adds it automatically.
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— current or estimated interest rate + 0.50% annual FHA MIP.Used for projected loan-balance and line-of-credit growth.
Test a Voluntary Payment
Monthly principal and interest payments are not required on a HECM. Enter any voluntary monthly amount you would like to test.
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For this estimate, the calculator first adds the month’s interest and FHA MIP, then applies the voluntary payment. Actual results may vary based on payment timing and servicer practices.
A large voluntary payment may also create a tax benefit. Some accrued HECM interest may become deductible when it is actually paid, depending on how the loan proceeds were used and your individual tax situation. Check with your CPA or tax adviser before making a large payment.
Numbers Based on a 1-Year Projection
These numbers are estimates only, not exact future amounts. Your actual HECM balance and available line of credit will differ from the projections shown here. Your servicer is the best source for current loan information, and your loan officer can help you evaluate a specific scenario. This calculator is designed primarily to help you understand how voluntary payments can affect a HECM and to give you a reasonable ballpark estimate.
Compare the Results
Loan Balance
Available Line of Credit
Today
Loan Balance
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Available Line of Credit
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If You Make Payments
Loan Balance
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Available Line of Credit
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Normal HECM Growth
Loan Balance
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Available Line of Credit
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The available line of credit represents increased borrowing capacity, not cash on deposit or interest earned on an account.
How the Available Line of Credit Adds UpThe calculation
Starting available line of credit
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Normal line-of-credit growth
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Effect of monthly payments
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Ending available line of credit
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Payments restore borrowing capacity when made. That restored capacity can then participate in later line-of-credit growth.
IMPORTANT: KEEP THE HECM OPEN
Do not pay the loan balance to zero if you intend to keep the line of credit available. A full payoff ends the HECM and the line of credit. If you are making a large voluntary payment, confirm with your servicer how much balance should remain.
See How the Line of Credit Can Grow Over Time
Try 15 years and see what the available line of credit could look like. Think about future borrowing capacity for a medical emergency, care needs for a spouse, a major home repair, or an unexpected car expense. This is the big deal. An unused adjustable-rate HECM line of credit can grow over time, potentially creating substantially more borrowing capacity later in retirement. That can mean a financial liferaft in an emergency and more freedom to use home equity when it matters most.
Important Assumptions
Monthly principal and interest payments are not required on a HECM.
Borrowers must continue to meet the loan obligations, including living in the home as their principal residence, keeping property taxes and homeowners insurance current, paying applicable HOA dues, and maintaining the property.
This is an educational estimate only for an adjustable-rate HECM with an available line of credit. It is not for a fixed-rate HECM and is not a servicer statement, financial plan, tax opinion or legal advice.
The calculation assumes no new draws, no property-charge advances, no repair or LESA activity, and no changes in the entered interest rate.
The calculator uses a fixed annual FHA MIP of 0.50%. HUD rules provide that the principal limit increases monthly at one-twelfth of the current mortgage interest rate plus one-twelfth of the annual MIP rate. The HECM line of credit increases at the same rate.
The model assumes the voluntary payment is credited to the line-of-credit portion of an adjustable-rate HECM. Actual payment application is controlled by the loan documents and servicer.
To keep this illustration focused on preserving an open HECM line of credit, the calculator retains a $200 loan balance rather than projecting the balance to zero. Once that point is reached, it applies only enough of the entered voluntary payment to offset new monthly charges and maintain the illustrated $200 balance. Confirm exact payment instructions and servicing treatment with the loan servicer.
The available line of credit is borrowing capacity. Its growth is not interest earned and is not money in a deposit account.
Actual results can differ because of rate changes, exact payment dates, partial-month accruals, servicing practices, fees, advances and the specific terms of the HECM.
Federal references: 24 CFR § 206.3 (principal limit growth), 24 CFR § 206.25 (line of credit growth and monthly interest/MIP), 24 CFR § 206.209 (prepayment), and HUD's HECM Adjustable Interest Rate Model Loan Agreement. 24 CFR Part 206 |
HUD Handbook 4000.1 |
HUD HECM ARM Model Loan Agreement
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For informational and educational purposes only. This calculator is an illustration. It is not a loan offer, commitment, approval, financial advice, tax advice, or legal advice, and it does not replace your loan documents or servicer statement.
Actual HECM balances, interest rates, FHA mortgage insurance charges, available proceeds, payment application, line-of-credit availability, and future results can differ from the estimates shown here. Actual loan information and available proceeds are determined by the loan documents and servicer.
HECM borrowers remain responsible for meeting the requirements of the loan, including occupying the home as their principal residence, keeping property taxes and homeowners insurance current, paying applicable HOA dues, and maintaining the property.
These materials are not from HUD or FHA and were not approved by HUD or a government agency.
Credit and collateral are subject to approval. Additional restrictions may apply. Terms and conditions apply. This is not a commitment to lend. Programs, rates and conditions are subject to change without notice.