When most people hear the term “reverse mortgage,” they often picture someone taking out a large lump sum of cash. But there is a lesser-known strategy that a growing number of retirees are beginning to explore — and it may offer significant long-term potential. Instead of accessing funds immediately, some homeowners choose to open a reverse mortgage line of credit and intentionally leave it unused, allowing it to grow over time.
How a Reverse Mortgage Line of Credit Works
A Home Equity Conversion Mortgage (HECM) the FHA1-insured reverse mortgage available to eligible homeowners age 62 and older — offers several ways to access funds: a lump sum, monthly payments, a line of credit, or a combination. One distinctive feature of the HECM line of credit is that the unused portion of the available credit line may grow over time at a rate tied to the loan’s interest rate. This is sometimes referred to as the “credit line growth feature.”
This is structurally different from a traditional Home Equity Line of Credit (HELOC)2. A standard HELOC maintains a fixed credit limit that does not grow, and lenders may have the ability to reduce, freeze, or cancel access to funds under certain circumstances. With a HECM line of credit, as long as the borrower continues to meet loan obligations including paying property taxes and homeowners’ insurance and maintaining the home, the credit line cannot be reduced or canceled by the lender, and the unused portion continues to grow.
An Illustrative Example
To illustrate how this feature works, consider a hypothetical scenario: A 62-year-old homeowner establishes a HECM line of credit with an initial available amount of $200,000 and chooses not to draw on it. Using a hypothetical growth rate of approximately 5.5% annually (for illustrative purposes only — actual rates will vary based on current interest rates and loan terms), the available credit line might grow as follows:
• After 10 years (age 72): approximately $346,000
• After 20 years (age 82): approximately $600,000
• After 30 years (age 92): approximately $1,040,000
These figures are hypothetical estimates only. Actual credit line growth depends on the interest rate applied to the loan, which fluctuates with market conditions. This illustration is not a guarantee of any specific outcome.
It is also worth noting why this growth occurs: the available credit increases at the same rate as the outstanding loan balance would grow if funds had been borrowed. The borrower is not receiving “free money” rather, they are maintaining growing access to potential borrowing power. If the borrower never draws on the line, no debt is incurred. Interest accrues only on amounts drawn.
How This Compares to Other Options
For educational context, here is how that hypothetical $200,000 might compare under different scenarios:
• A savings account earning a hypothetical 4% annually might grow to approximately $296,000 after 10 years a meaningful difference from the illustrative HECM credit line example above.
• A traditional HELOC would remain at approximately $200,000 assuming it had not been frozen or reduced.
• An investment portfolio could potentially grow more, but would be subject to market risk, taxes, and volatility.
The HECM credit line growth is not subject to market risk, and any draws are generally not considered taxable income at the time (consult a tax advisor for guidance specific to your situation). The trade-off, of course, is the cost of establishing the loan, discussed below.
Potential Planning Applications3
Financial planners and researchers have explored several ways this strategy might fit into a broader retirement income plan. These are educational concepts not personalized advice, and their suitability depends entirely on an individual’s financial situation, goals, and health:
Social Security Coordination4: Some retirees choose to delay Social Security benefits until age 70, when monthly payments may be higher. A HECM line of credit could potentially serve as a source of funds during the gap years, though this approach involves trade-offs and should be evaluated carefully.
Portfolio Protection: During periods of market decline, drawing on a HECM line of credit rather than liquidating investments at depressed prices may help preserve a portfolio’s long-term recovery potential. This concept — sometimes called managing “sequence-of-returns risk” is discussed in academic research on retirement income planning.
Long-Term Care Contingency: Long-term care can represent a significant and often unpredictable expense in retirement. A growing HECM line of credit may offer one potential source of funds for such costs, though it should not be viewed as a substitute for comprehensive long-term care planning.
Understanding the Costs5
A HECM is not a free product. Upfront costs typically include:
• An origination fee (regulated by FHA, with limits tied to home value)
• An upfront mortgage insurance premium (MIP) of 2% of the appraised home value (subject to FHA loan limits)
• Third-party closing costs (appraisal, title, escrow, recording fees, etc.)
Total upfront costs can vary widely depending on the home’s value, lender fees, and location. Borrowers also pay an ongoing annual MIP of 0.5% of the outstanding loan balance. These costs accumulate over time and may reduce the equity remaining in the home.
It is important to evaluate whether the long-term potential benefits of establishing this strategy justify the upfront and ongoing costs for your specific situation. A HUD-approved reverse mortgage counselor can help you understand the full cost picture.
Who Might Consider This Approach
Based on the product’s structure, this strategy may be worth exploring for homeowners who:
• Are age 62 or older and own their home with significant equity
• Are in good health and anticipate a long retirement
• Want to maintain a financial contingency reserve
• Are concerned about market volatility or healthcare costs in retirement
• Plan to remain in their home long-term (the credit line growth feature is most impactful over longer timeframes)
This strategy may be less suitable for homeowners whose primary goal is to maximize equity for heirs6, or those who may not be able to sustain the loan’s ongoing obligations (taxes, insurance, maintenance). As with any financial strategy, there are trade-offs, and individual circumstances vary significantly.
Final Thoughts
The reverse mortgage line of credit is one of the more complex — and potentially powerful — tools available to eligible retirees. The combination of guaranteed access to credit, the credit line growth feature, and the inability of the lender to reduce or freeze the line (as long as obligations are met) sets it apart from other home equity products.
That said, this is not a decision to make lightly or in isolation. The numbers in this article are illustrative, not predictive. The right choice depends on your health, financial situation, family goals, and long-term plans.
The real question worth asking is whether knowing this tool exists and understanding how it works changes how you think about preparing for retirement. For many people, learning about it for the first time does exactly that. Any questions, let’s connect.
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Have questions or ready to take the next step in your home financing journey? I’m here to help.
Call: (858) 526-3037
Email: carl.spiteri@originpoint.com
Carl Spiteri
Producing Partnership Branch Manager
1OriginPoint is an FHA Approved Lending Institution and is not acting on behalf of or at the direction of HUD/FHA or the Federal government
2This is not a commitment to lend. Home Equity Conversion Mortgages (HECMs) are eligible for borrowers 62 and older. Borrower must pay property taxes, Homeowner’s insurance, HOA dues (as applicable), and maintain the home and using it as primary residence or the loan will need to be repaid. Otherwise, the loan must be repaid when the borrowers leave the home more than 12 consecutive months, transfer their property’s title to another person, the last borrower passes away or sells the home. Prices, guidelines and minimum requirements are subject to change without notice. Subject to review of credit and/or collateral; not all applicants will qualify for financing. It is important to make an informed decision when selecting and using a loan product; make sure to compare loan types when making a financing decision. This material has not been reviewed, approved or issued by HUD, FHA or any government agency. Rate is not affiliated with or acting on behalf of or at the direction of HUD, FHA or any other government agency. To find a Reverse Mortgage counselor near you, search the HECM Counselor Roster at https://entp.hud.gov/idapp/html/hecm_agency_look.cfm or call (800) 569-4287. Charges such as an origination fee, mortgage insurance premiums, closing costs and/or servicing fees may be assessed and will be added to the loan balance. The loan balance grows over time, and interest is added to that balance. Interest on a reverse mortgage is not deductible from your income tax until you repay all or part of the interest on the loan. Although the loan is non-recourse, at the maturity of the loan, the lender will have a claim against your property and you or your heirs may need to sell the property in order to repay the loan or use other assets to repay the loan in order to retain the property. You should know that a reverse mortgage is a negative amortization loan which means that your mortgage balance will increase while your home equity decreases if you do not make principle and interest payments on your loan. This may make it more difficult to refinance the loan or to obtain cash upon the sale of the home. However, you will never owe more than the home is worth when the loan is repaid.
3OriginPoint does not provide financial planning services. The consumer should always consult a financial professional for information regarding financial decisions in their particular situation.
4Consult a financial professional. Visit www.ssa.gov
5When the loan is due and payable, some or all of the equity in the property that is the subject of the reverse mortgage no longer belongs to borrowers, who may need to sell the home or otherwise repay the loan with interest from other proceeds. The lender may charge an origination fee, mortgage insurance premium, closing costs and servicing fees (added to the balance of the loan). The balance of the loan grows over time and the lender charges interest on the balance. Borrowers are responsible for paying property taxes, homeowner’s insurance, maintenance, and related taxes (which may be substantial). We do not establish an escrow account for disbursements of these payments. A set-aside account can be set up to pay taxes and insurance and may be required in some cases. Borrowers must occupy home as their primary residence and pay for ongoing maintenance; otherwise the loan becomes due and payable. The loan also becomes due and payable (and the property may be subject to a tax lien, other encumbrance, or foreclosure) when the last borrower, or eligible non-borrowing surviving spouse, dies, sells the home, permanently moves out, defaults on taxes, insurance payments, or maintenance, or does not otherwise comply with the loan terms. Interest is not tax-deductible until the loan is partially or fully repaid.6OriginPoint offers additional loan products which allow you to access the equity within your home. Please contact your loan officer to see which option is best suited for your financial needs.
Information provided is for educational purposes only. It should not be construed as financial or legal advice or instruction. OriginPoint does not guarantee or assume liability for the accuracy, completeness or timelines of the information. You should conduct additional research before making any mortgage related decisions.
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