HECM Line of Credit: How the Growth Rate Works and When an HECM LOC Beats a HELOC for Qualifying Seniors

The HECM line of credit is one of the most underutilized tools in the senior mortgage segment. Most MLOs know the HECM as a lump-sum reverse mortgage, but the line of credit variant has a unique feature: the unused portion grows over time at the same rate as the loan interest plus the MIP rate, providing an increasing available credit line regardless of home value changes.

How the Growth Rate Works

The undrawn balance in an HECM line of credit grows at the loan's effective interest rate (current index plus margin) plus the 0.5% annual MIP rate. This means the available credit increases even if home values decline. A borrower who establishes a $300,000 HECM LOC and draws nothing will see that available credit line grow to approximately $330,000-$360,000 over five years depending on current rates. No other credit product offers this feature; a HELOC's available credit is fixed or can be reduced by the lender.

Eligibility Requirements

• ✦Borrower must be 62 or older (all borrowers on title must be 62+; non-borrowing spouses have separate protections)
• ✦Property must be the borrower's primary residence
• ✦Property types: single-family 1-4 unit owner-occupied, FHA-approved condo, PUD
• ✦Borrower must complete HUD-approved reverse mortgage counseling before application
• ✦Existing mortgage must be paid off or paid down to allow the HECM to be the first lien
• ✦Maximum claim amount in 2026: $1,209,750 (same as FHA maximum mortgage limit)

HECM LOC vs. HELOC for the Senior Borrower

A HELOC requires monthly interest payments and can be frozen or reduced by the lender. The HECM LOC requires no monthly payment; interest accrues on drawn amounts and is added to the loan balance. The HECM LOC cannot be frozen or reduced as long as the borrower maintains the property, pays property taxes and insurance, and continues to occupy the home as their primary residence. For a borrower with high equity and strong cash flow needs but fixed retirement income, the HECM LOC provides access to liquidity without adding to monthly obligations. The tradeoff is that the loan balance grows over time and reduces the estate's net equity.