"The growth feature built into unused HECM lines of credit is genuinely underappreciated, and understanding how it works changes the calculus of when and why to open one."
"When the HECM line of credit goes unused, the available borrowing capacity grows at a rate equal to the loan's effective interest rate plus the 0.5% annual mortgage insurance premium charged by HUD."
"Left untouched at a 7.5% annual growth rate, that $400,000 compounds to approximately $1.1 to $1.2 million of available borrowing capacity by age 80."
"A retiree at 80 with $1.1 million in available HECM credit has a liquidity buffer that can absorb almost any financial disruption."
A Home Equity Conversion Mortgage (HECM) line of credit can be strategically opened at age 65, allowing the unused borrowing capacity to grow significantly. The growth rate of the unused line is approximately 7% to 7.5% per year, leading to a potential increase from an initial $400,000 to about $1.1 to $1.2 million by age 80. This growth provides retirees with a substantial liquidity buffer to manage financial disruptions, making it a valuable tool for longevity insurance in retirement planning.
Read at 24/7 Wall St.
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