Creditline Growth, Plus a Monthly Advance,

Creditline Growth

Perhaps the most attractive HECM feature is that its creditline grows larger overtime. This means that the amount of cash available to you increases until you  withdraw all of it.

For example, if the creditline equals $100,000 and you withdraw $20,000, you would have $80,000 left. But if your next withdrawal is one year later, you would then have more than $80,000 left because the $80,000 grows larger by the same total rate being charged on your loan

balance. If that rate were to equal 6% per year, for example, your available creditline one year later would be $84,800 (6% x $80,000 = $4,800).

So a growing HECM creditline can give you a lot more total cash than a creditline that does not grow. The HECM creditline keeps growing larger every month for as long as you have any

credit left; that is, until you withdraw all your remaining cash.* The calculator at

www.aarp.org/revmort (click on “Reverse Mortgage Calculator”) estimates how much cash would remain in a HECM versus a non-growing creditline. HECM creditline growth means you should not even think about taking a large lump sum of cash from a HECM and putting it

into savings or an investment. If you did that, you would be charged interest on the full amount of the HECM lump sum. But if you leave the money in the creditline, not only would you avoid

substantial interest charges. You would also end up with more available cash, as your creditline increases at a greater rate than a savings account or safe investments are likely to increase.

Plus a Monthly Advance

The HECM program lets you combine a lump sum, a creditline, or both with a monthly advance. A monthly loan advance does not increase or decrease in dollar amount over time. So it will buy

less in the future as prices increase with inflation. 

You can choose to have monthly HECM advances paid to you for:

• a specific number of years that you select (a “term” plan); or

• as long as you live in your home (a “tenure” plan).

A term plan gives you larger monthly advances than a tenure plan does. The shorter the term, the greater the advances can be. But the advances only run for a specific period of time. You do not have to repay the loan when the term ends, but you no longer receive monthly advances

past the end of the term you select.

Table 2 shows some of the combinations that could be selected by a 75-year-old female borrower living in a $250,000 home with a loan at 7% expected interest.

For example, if this borrower selects a $25,000 lump sum and a $50,000 creditline, she also could get any one of the following: a monthly advance of $444 for as long as she lives in her home, $557 each month for 15 years, $713 each month for 10 years, or $1,204 monthly for 5

years. Table 2 makes two things clear:

• if you take more money as a lump sum or creditline, the monthly advances are smaller; and

• if you select a shorter term of monthly advances, the amount of each advance is greater.