Your First Year with a Reverse Mortgage
Congratulations — you've closed on your HECM reverse mortgage. But what happens next? Understanding the first year of your reverse mortgage helps you make the most of your new financial tool.
Closing and the Right of Rescission
After signing your closing documents, you have a three-business-day right of rescission — a cooling-off period during which you can cancel the loan without penalty. Once this period expires, your loan becomes effective and funds begin to disburse according to your chosen plan.
Initial Disbursement
In the first 12 months, there's a limit on how much you can withdraw. This initial disbursement limit is typically 60% of your principal limit, unless your mandatory obligations (such as paying off an existing mortgage) exceed this amount. If mandatory obligations exceed 60%, you can access the mandatory amount plus an additional 10% of the principal limit.
Months 1-12: The Waiting Period
During the first year, your unused line of credit begins growing immediately. Interest accrues on any amounts you've borrowed. Your loan servicer will send you monthly statements showing your loan balance, available credit, and any transactions. This is also the time to establish a routine for meeting your property obligations.
After 12 Months: Full Access
Once 12 months have passed since closing, you gain access to your remaining available credit. This is when the full flexibility of your reverse mortgage becomes available. You can draw funds as needed, set up monthly payments, or simply let your credit line continue to grow.
Credit Line Growth
Throughout the first year and beyond, your unused credit line grows at a rate equal to your interest rate plus 0.50% (the annual MIP rate). This compounding growth is one of the most valuable features of an adjustable-rate HECM.
Staying Informed
Review your monthly statements carefully. They contain important information about your loan balance, interest charges, MIP charges, and available credit. If you have questions, don't hesitate to contact your loan servicer or reverse mortgage advisor.
