If You Want the Largest Possible HECM Credit Line in the Years Ahead, Do You Take it Now or Wait Until You Are Older?

October 21, 2022

I will assess this question for a homeowner of 62 with a house now worth $400,000 who has no current need to draw funds from a HECM but wants the largest possible credit line looking ahead – say in 3 years. I will call this homeowner Prudent. The data used in answering this question are based on the lowest loan prices charged on September 28, 2022 by any of the 8 HECM lenders who post their prices on my web site.

An informed surmise is that inasmuch as Prudent has no immediate need for HECM funds, she should wait until the need arises before transacting. Waiting means becoming older, which raises the credit line. In all likelihood, furthermore, the value of her house will be higher, which will also increase the line. If interest rates are stable and house value appreciates 4% a year, which is the long-term average, the credit line taken now will be worth $156,557 in 3 years while the line taken after 3 years would be $157,970. The relevant data are shown in the tables below.

The disadvantage of taking the line now as opposed to waiting for 3 years is very small because a credit line taken now and not used for 3 years will increase in size over that period. The line grows at a rate equal to the HECM loan rate plus the mortgage insurance premium.

If rates increase during the 3 years, the line available to Prudent after 3 years if she transacts now will be larger while the line available to her if she waits 3 years before transacting will be smaller. Assuming a rate increase of 2%, for example, transacting now will generate a line of $166,181 in 3 years whereas in waiting for 3 years, the line would drop to $111,169. The disadvantage of waiting would be enormous.

The conclusion is very clear. Given the chaotic state of current markets, the best time to take out a HECM reverse mortgage credit line is now.