The First-Year Disbursement Limit
Why You Can't Take It All at Once
JP Dauber · Licensed HECM Specialist
NMLS# 386298 · Published August 12, 2026
What the rule says
Federal rules cap what you can pull from a HECM during the first 12 months at 60% of your available principal limit. After the first year, the remaining funds become available to you.
It applies to lump sums, draws on a line of credit, and any combination — the 60% is a total first-year ceiling, not a per-transaction limit.
The mandatory-obligation exception
If you have what HUD calls mandatory obligations — most commonly an existing mortgage the HECM must pay off — you are allowed to take those amounts even if they exceed 60%.
On top of paying the mandatory obligations, you can take an extra 10% of the principal limit in cash during year one.
Key fact
If your existing mortgage payoff uses more than 60% of your principal limit, the rule does not trap you. You can pay off the full mortgage plus take another 10% of your principal limit in cash during the first year.
Why the limit exists
The rule was added to protect borrowers and the FHA insurance fund. Before it, some borrowers took everything as a lump sum on day one, then struggled to cover taxes and insurance years later.
By spacing access, the rule encourages keeping equity available for future needs rather than draining it immediately.
How it affects your strategy
For most borrowers using a line of credit, the limit barely matters — they were not planning to take it all at once anyway, and the unused portion grows.
It matters most for fixed-rate lump-sum borrowers, who must take a single full draw and therefore feel the 60% ceiling directly. That is one reason the line of credit is so popular.
Plan year one carefully
Knowing the first-year limit up front lets you sequence your draws sensibly — pay off the mortgage, take what you genuinely need, and leave the rest to grow.
Want help mapping out your first 12 months? Reach out and I will lay out exactly what you can access and when.
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