Replenishing a Line of Credit

A NRMLA member recently submitted the following question that deals with prepaying a HECM line of credit. The answer was provided by Daniel Mooney, a senior underwriter at HUD's Santa Ana Homeownership Center, in Santa Ana, CA.

Question: If a senior withdraws money from his/her line of credit, say $50,000, can they at a later time (perhaps within 6 months of withdrawal) return that money? In 2006, as a counselor, I was told NO because that would mean that you're treating your line of credit as a super savings account so to speak. However, a senior, if they come into some money perhaps and need the tax deductions, could apply a sum of money to the accumulating interest and then costs, but NOT to their line of credit. [If they paid all interest, and all costs, even if they had unused money still in a LoC, the RM would be considered paid off and the RM would cease to be.

Answer: A HECM borrower may, of course, prepay their loan, in part or in full, at any time of their choosing. When such payments are made, they are indeed applied to the outstanding balance in a particular order: mortgage insurance balance, servicing fee balance, interest balance and then to principal (that is to say...repayment of prior advances). Those portions of partial prepayments that are allocated and applied to principal do indeed restore "net principal limit" to the borrower's benefit. That is to say, those funds become available to the borrower for their access through either scheduled (term or tenure payments) and/or unscheduled (LOC advances) distributions.