The HECM Line of Credit: How It Grows and When It Makes Sense

Most people have heard of a reverse mortgage, but few understand its most surprising feature. The unused portion of the line of credit can actually grow over time. For homeowners 62 and older who want access to their home equity without a required monthly payment, that makes the HECM line of credit one of the most useful tools in retirement planning.

I am Adam Heaney, a mortgage loan officer with 28 years in the business, and I have walked families through this product for decades. A Home Equity Conversion Mortgage, or HECM, is the FHA-insured reverse mortgage. It is not right for everyone, but for the right homeowner it can unlock flexibility that savings accounts and pension checks often cannot. Here is how it actually works, what it costs, how the unused balance grows, and when it makes sense to explore it further.

What Exactly Is a Reverse Mortgage (HECM)?

A Home Equity Conversion Mortgage lets homeowners aged 62 and older convert part of their home equity into cash, without selling the home, and without a required monthly mortgage payment. The loan is repaid when the last borrower dies, sells the home, or permanently moves out. Because it is FHA-insured, it is a non-recourse loan. Neither you nor your heirs will ever owe more than the home is worth.

To qualify, you need to be at least 62, use the home as your primary residence, and complete a counseling session with a HUD-approved housing counselor. The lender also runs a financial assessment. There is no monthly payment requirement, but interest does accrue on what you borrow, and the loan balance grows over time.

How the Line of Credit Works: Principal Limits 101

Before you can draw a penny, HUD calculates your principal limit, which is the maximum amount you can access. It is computed from two inputs: the maximum claim amount, and the principal limit factor.

Your maximum claim amount is the lesser of your home's appraised value, and HUD's national HECM lending limit, which for 2026 is $1,249,125. Your principal limit factor comes from a HUD table, and it rises with the age of the youngest borrower, and falls as the expected interest rate rises. In broad strokes, at a 2026 expected rate of about 6%, principal limit factors run roughly 37% near age 65,44% near age 75, and 55% near age 85, per HUD's methodology.

Here is a quick illustration using round numbers, rather than a formal quote. Suppose your home is worth $800,000, and the youngest borrower is 75 with an expected rate near 6%. The principal limit lands around $352,000. From that, HUD subtracts any existing mortgage payoff, property tax, and insurance set-asides, and other obligations, so the amount actually available to you is lower. That leftover is what you can draw.

The Growth Feature: Why Your Unused Line of Credit Grows

Here is the feature that surprises almost everyone. With a HECM line of credit, the unused portion of your credit line grows every month, at a compounding rate equal to the loan's expected interest rate plus the 0.5% annual mortgage insurance premium. In today's market, that works out to roughly 6.5% to 7.5% per year. The growth is contractually guaranteed by HUD, and does not depend on what your home does in value.

Let me show you with a real example. Suppose you open a line of credit, and never touch $200,000 of it. Growing at about 7% per year, compounded monthly, that $200,000 becomes roughly $214,000 after year one, and roughly $394,000 after 10 years. You have effectively grown your available equity while doing nothing, and that can be a powerful hedge against living a long time.

One distinction matters. The growth applies only to money you have not drawn. Once you draw funds, that portion carries the loan's interest like any other borrowing, while the balance you leave untouched keeps growing. That is why many financial planners treat the HECM line of credit as a stand-by reserve, rather than a spending account.

The 60% Rule: What You Can Draw in Year One

You cannot take the entire principal limit out on day one. HUD caps disbursements at closing, and within the first year, to the greater of 60% of your initial principal limit, or your mandatory obligations, such as paying off an existing mortgage, plus up to an additional 10% of the principal limit, and never exceeding your net principal limit.

In plain English, if you open a line of credit with no mandatory obligations, you can draw at most about 60% of your principal limit during the first year. The remaining portion becomes available after year one. If your biggest goal is a large lump sum immediately, be aware that the 60% first-year rule applies, and that limitation is worth knowing before you commit.

What This Costs: The Real Fee Picture

Reverse mortgages are not free, and you deserve the honest cost breakdown before anything else.

• Upfront mortgage insurance premium: 2.0% of the maximum claim amount, though it can be financed into the loan, rather than paid out of pocket.
• Annual mortgage insurance premium: 0.5% of the outstanding loan balance each year, which also funds the growth feature on your unused credit.
• Origination fee: the greater of $2,500, or 2% of the first $200,000 of the maximum claim amount, plus 1% of anything above that, capped at $6,000.
• Counseling: federally required with a HUD-approved counselor, typically costing $125 to $175, and while the lender cannot pay it directly, it can often be financed into the loan.

Add in appraisal, title, recording, and closing costs like any mortgage, and you can see why a HECM is best thought of as a long-term strategy. If you only need money for a year or two, the upfront costs usually do not make sense. If you plan to stay for a decade or more, the costs amortize against a lot of usefulness.

What Happens to Your Heirs?

This is the question families ask most, and the answer is more reassuring than many expect. When the last borrower dies, or permanently leaves the home, the loan becomes due, and payable. Heirs then have real options:

• Keep the home: pay off the loan for the lesser of the outstanding balance, or 95% of the home's appraised value, whether on their own, or by refinancing into a traditional mortgage.
• Sell the home: proceeds repay the reverse mortgage, and any remaining equity belongs to the estate.
• Walk away if underwater: because the HECM is non-recourse, ifthe home is worth less than the loan balance, heirs can deed the property to the lender, and owe nothing else.

Heirs typically have 30 days to tell the lender their intentions, and up to 12 months to complete a sale, payoff, or refinance, with extensions possible. And if you have a spouse who is not on the loan, HUD's non-borrowing spouse protections can allow them to remain in the home for life with repayment deferred, provided they meet HUD's requirements. That is a conversation worth having with your family, rather than guessing later.

HECM for Purchase: Buying a Home With a Reverse Mortgage

You do not have to own a home to use a HECM. The HECM for Purchase program lets buyers aged 62+ purchase a new primary residence using a reverse mortgage instead of a traditional forward loan.

The buyer brings a substantial down payment, typically ranging from roughly 40% to 65% of the purchase price, depending on the age of the youngest borrower, and the HECM covers the rest, up to the 2026 lending limit of $1,249,125. There are no required monthly mortgage payments, which is why the program appeals to retirees who want to move closer to family, downsize, or relocate to a warmer state, like the states I serve across California, Arizona, Colorado, Florida, Texas, and Washington, without trading equity for monthly housing costs.

When Does a Reverse Mortgage Line of Credit Actually Make Sense?

Straight talk time. A HECM line of credit tends to shine when several of these are true:

• You plan to stay in your home for the long haul, typically 5 to 10 years or more.
• You want a reserve you can draw on when you need it, not paycheck-style monthly income.
• You like the idea of your unused borrowing power growing over time, to hedge against inflation, and longevity.
• You carry a mortgage payment that cramps your retirement budget, and want breathing room without selling.

And when does it make less sense? If you expect to move within a few years, if you need most of the equity as a lump sum immediately, or if you only need a small short-term loan, the upfront costs, and the 60% first-year rule usually argue against it. There are plenty of other tools for those situations, and I am happy to show you which ones fit.

How Today's Market Changes the Math

Context helps. As of late August 2026, the average 30-year fixed mortgage rate is running around 6.66%, per Freddie Mac's weekly survey, with the 10-year Treasury near 4.7%. For HECMs, HUD's expected rate has a floor of 5.0%, and expected rates are running near 6%, which keeps principal limit factors lower than they were in the ultra-low-rate era.

What that means practically is that today's HECM line of credit does more of its heavy lifting through the growth feature, than through an enormous starting principal limit. The combination of a 6.5% to 7.5% growth rate on unused funds, and a long time horizon, is exactly what makes this product interesting for retirement planning, rather than as a quick cash grab.

A Realistic Example: How the Numbers Come Together

Let's put all the pieces side by side with an illustrative couple, and I want to be upfront that these are rounded numbers for teaching, rather than a quote for your situation.

Suppose a 75-year-old homeowner has a home worth $800,000, with a small remaining mortgage of $80,000. At a roughly 6% expected rate, the principal limit lands near $352,000. HUD first accounts for the existing mortgage payoff, and sets aside money for taxes, and insurance, which might reduce the available principal to roughly $240,000. Because there are mandatory obligations, the 60% first-year rule is less binding. Those obligations, plus up to an additional 10% of principal, can be handled immediately, with the rest available after year one.

The couple decides to leave $150,000 of their line untouched. At a 7% growth rate, that $150,000 grows toward $161,000 in year one, and past $295,000 near year 10, all contractually, regardless of where home prices go. Meanwhile, they have cleared the $80,000 mortgage payment that was eating their budget. That is the pitch in one paragraph, for the right homeowner.

Your numbers will differ. Your age, your expected rate, your county's lending limit, your property taxes, and your insurance all movethe result. That is exactly why I run the honest math for each client, rather than handing out ballpark dreams.

The Bottom Line

A HECM line of credit is not a magic product, and it is certainly not right for everyone. But for a homeowner aged 62+ who plans to stay put, wants to eliminate mortgage payments, and likes the idea of a growing, guaranteed line of credit they can call on as life unfolds, it deserves a real look. The growth feature, the non-recourse protection, and the flexibility to draw when needed, are genuinely hard to find anywhere else.

The worst thing you can do is make this decision off a headline, or an online calculator. Talk to someone who will walk you through principal limits, set-asides, costs, and heir scenarios, with your real numbers. That is what I am here for, and I will even record a personalized video walking through your specific situation, so you and your family can watch it together.

Author: Adam Heaney, Loan Officer, NMLS #283076, Emery Financial