How a HECM Line of Credit Grows (and Why the House Is Not in the Formula)

Updated August 13, 2026. Quick answer: the unused part of a reverse-mortgage line of credit grows every month at one-twelfth of the note rate plus one-twelfth of the annual mortgage insurance rate. Nothing in that formula refers to the house. At a 6.00% note rate a $150,000 unused line reaches $286,828 in ten years and $548,467 in twenty, whether the home rose, fell or did nothing at all.

The formula, in the regulation’s own words

The growing quantity is called the principal limit, and it is defined like this:

“Principal limit means the maximum amount calculated, taking into account the age of the youngest borrower or Eligible Non-Borrowing Spouse, the expected average mortgage interest rate, and the maximum claim amount. The principal limit is calculated for the first month that a mortgage could be outstanding using factors provided by the Commissioner. It increases each month thereafter at a rate equal to one-twelfth of the mortgage interest rate in effect at that time, plus one-twelfth of the annual mortgage insurance rate.” — 24 CFR § 206.3

The line of credit is not a separate pot with rules of its own. It rides on that same increase:

“The line of credit amount increases at the same rate as the total principal limit increases under § 206.3.” — 24 CFR § 206.25(g)

So the monthly growth rate is the note rate plus the annual mortgage insurance rate, divided by twelve. At a 6.00% note rate that is 0.5417% a month.

The insurance rate is 0.50 percent, and the regulation will not tell you that

Half of the growth rate is the “annual mortgage insurance rate”. Look it up in the regulation and you find a ceiling, not a rate:

“Monthly MIP. The Commissioner may establish and collect a monthly MIP, which will accrue daily from the closing date, at a rate not to exceed 1.50 percent of the remaining insured principal balance, or up to 1.55 percent for any mortgage involving an original principal obligation that is greater than 95 percent of appraised value of the property.” — 24 CFR § 206.105(b)

Use 1.50 percent and you will overstate the growth rate by a wide margin. The operative figure is set by mortgagee letter, and it is one third of one percent lower than the ceiling:

“The initial MIP rate is changed to two percent (2.00%) of the Maximum Claim Amount (MCA). … The annual MIP rate is changed to one-half of one percent (0.50%) of the outstanding mortgage balance. … This guidance supersedes the Initial and Annual MIP Structure section of Mortgagee Letter 2014-21.” — HUD Mortgagee Letter 2017-12 (Aug. 29, 2017)

Every figure on this page uses 0.50%.

What the growth actually comes to

Starting unused line $150,000, annual mortgage insurance 0.50%. Read the third column before the rest: the effective annual growth is higher than the note rate plus the insurance rate, in every row. That is not a rounding artefact. The regulation compounds the increase each month, so a stated 6.50% compounds to 6.697%. Over twenty years at that rate the line is 3.66 times its starting size.

There is no house in the formula

This is the feature that is genuinely underexplained, and it follows from what the definition does not say. The growth term is a rate applied to a balance. The only place property value enters a HECM at all is the maximum claim amount, and that is fixed at the beginning:

“Maximum claim amount means the lesser of the appraised value of the property, as determined by the appraisal used in underwriting the loan; the sales price of the property being purchased for the sole purpose of being the principal residence; or the national mortgage limit for a one-family residence under subsections 255(g) or (m) of the National Housing Act (as adjusted where applicable under section 214 of the National Housing Act) as of the date of loan closing.” — 24 CFR § 206.3

Fixed by the appraisal used in underwriting the loan. Nothing in the growth formula re-reads the property later, so a fall in the home’s value does not slow the line down. Carried far enough, the line passes the value of the house: a $150,000 line at a 6.00% note rate reaches $400,000 after 182 months, or 15.2 years.

That is not a defect and it is not a trick. It is what non-recourse means — the shortfall belongs to the federal insurance fund, not to the borrower or the estate:

“The borrower shall have no personal liability for payment of the outstanding loan balance. The mortgagee shall enforce the debt only through sale of the property. The mortgagee shall not be permitted to obtain a deficiency judgment against the borrower if the mortgage is foreclosed.” — 24 CFR § 206.27(b)(8)

The national maximum claim amount is a single flat figure HUD resets each year. For calendar year 2025 it was stated as $1,209,750:

“the HECM MCA will be $1,209,750 … The MCA of $1,209,750 is also applicable to the special exception areas: Alaska, Hawaii, Guam, and the Virgin Islands.” — HUD Mortgagee Letter 2024-22 (Nov. 26, 2024)

We are quoting the 2025 letter because it is the most recent one HUD publishes at a readable address. HUD’s own limits system returned errors to every route tried on 2026-08-13, so no current-year figure is asserted here. Check the current limit before relying on one.

On a fixed-rate HECM the growth is unreachable

This is the sentence that decides whether any of the above applies to a particular loan, and it is buried in a definition:

“Although the principal limit of a fixed interest rate HECM will continue to increase at the rate provided by the Commissioner, no further funds may be made available for the borrower to draw against after closing.” — 24 CFR § 206.3

Read it slowly. The principal limit on a fixed-rate HECM still increases. And no further funds may be made available to draw against it, ever. The growth happens and it cannot be reached. A borrower who took a fixed-rate HECM because the rate felt safer does not have the feature this page describes — the growing line belongs to the adjustable-rate product. The line-of-credit option itself is defined separately:

“Line of credit payment option. Under the line of credit payment option, payments are made by the mortgagee to the borrower at times and in amounts determined by the borrower as long as the amounts do not exceed the payment amounts permitted by § 206.25.” — 24 CFR § 206.19(c)

What this page does not claim

It does not model the note rate changing, which on an adjustable-rate HECM it will; the regulation says the rate applied is the one “in effect at that time”, so a real line grows at a rate that moves month to month and the table’s fixed rates are illustrations. It does not calculate anyone’s initial principal limit, which comes from factors HUD supplies and which no public formula reproduces. It asserts no calendar-year-2026 maximum claim amount, for the reason given above. And it is not an argument for taking a reverse mortgage: a feature being mathematically real is not the same as the product being right for a household.

Sources

Every figure on this page is computed from the text quoted below. Each row links the document it was read from.

General consumer information, not financial, tax or legal advice. Rules are as published by the cited authority on 2026-08-13 and change without notice; your own circumstances govern. Computed figures are illustrations on the assumptions stated on this page, not quotes, offers or predictions. Nothing is sold here and no product or provider is recommended.