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What is a reverse mortgage line of credit, and how does it work?
In this article:
- What is a reverse mortgage line of credit?
- What are the disadvantages of a reverse mortgage line of credit?
- How does a line of credit differ from other reverse mortgage payout options?
- How a line of credit works in a HECM loan vs proprietary reverse mortgages
- How a reverse mortgage line of credit differs from a home equity line (HELOC)
- FAQs about a reverse mortgage line of credit
Quick answer: A reverse mortgage line of credit is a payout option that can allow you to borrow funds as you need them, rather than all at once or in monthly installments.
Key points
Similar to a HELOC, a reverse mortgage line of credit may allow borrowers to access funds only when they need them, providing more flexibility than some other borrowing options.
Line of credit is generally only available for adjustable-rate loans, not fixed rate.
Eligibility requirements and loan terms vary for line-of-credit loans, depending on whether you choose a proprietary reverse mortgage or a Home Equity Conversion Mortgage (HECM).
When people think of a reverse mortgage, they often imagine receiving their available funds all at once as a lump sum or through monthly payments. But there’s another, more unique option that may offer more flexibility: a reverse mortgage line of credit, which lets you access funds as needed. Even better, you only pay interest on what you borrow, which can keep costs down compared to taking a lump sum.
Unlike a traditional home equity line of credit (HELOC), a reverse mortgage line of credit does not require monthly mortgage payments as long as you continue to meet the loan obligations. In some cases, the unused portion of the credit line may even grow over time, potentially increasing the amount you can borrow in the future.
Here’s what homeowners should know about how reverse mortgage lines of credit work, their advantages and drawbacks, and how they compare to other home equity options.
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
What is a reverse mortgage line of credit?
A reverse mortgage line of credit is a payout option that allows borrowers to access loan proceeds on demand instead of taking a lump sum or receiving monthly payments.
The line-of-credit option is available through a Home Equity Conversion Mortgage (HECM), the most common type of reverse mortgage, which is insured by the Federal Housing Administration (FHA), and some proprietary reverse mortgages. Keep in mind, not all reverse mortgages offer this option.
Unlike a traditional home equity line of credit (HELOC), a reverse mortgage line of credit does not require monthly mortgage payments as long as the borrower continues to meet the loan obligations, including living in the home as their primary residence, paying property taxes and homeowners insurance, and maintaining the property.
To be eligible for a HECM reverse mortgage line of credit, borrowers must at a minimum:
- Be at least 62 years old
- Live in the home as their primary residence
- Complete a counseling session with a HUD-approved counselor
- Meet FHA financial assessment requirements
Line-of-credit options on proprietary (non-HECM) reverse mortgages may have different eligibility rules, including lower age requirements in some states.
A quick note: Reverse mortgages often have higher upfront costs than other home equity borrowing options. These costs may include an origination fee, closing costs, and mortgage insurance premiums.
To learn more, please visit the CFPB’s “Reverse Mortgage: A Discussion Guide”
How do you access funds from a reverse mortgage line of credit?
Once the reverse mortgage is in place, borrowers may request funds whenever they need them. To access money from the line of credit, the borrower generally submits a signed draw request to the loan servicer. Funds are then disbursed by check or wired to a bank account held in the names of all borrowers on the loan.
Because funds are available on demand, many homeowners use a reverse mortgage line of credit as a financial reserve for unexpected expenses, home repairs, healthcare costs, or to supplement cash flow for everyday expenses. Interest accrues only on the amount borrowed, not on the unused portion of the credit line.
What are the advantages of a line of credit?
A reverse mortgage line of credit (LOC) offers flexibility that other payout options may not provide. Here are a few reasons why you might consider this option:
No required monthly mortgage payments
Like other reverse mortgage payout options, a line of credit does not require monthly mortgage payments as long as the borrower continues to meet the terms of the loan. To keep the loan in good standing, borrowers must live in the home most of the year and pay property taxes, homeowners insurance, and maintenance. You may make loan payments at any time, but they are not required as long as the loan terms are met.
Borrow only what you need
With a line of credit, you decide when and how much money to withdraw. Because interest only accrues on the amount borrowed, many homeowners choose to leave part of their available credit untouched until they need it.
Flexibility for changing financial needs
Retirement expenses can change over time. A reverse mortgage line of credit allows homeowners to access funds for nearly any purpose, including:
- Home repairs and renovations
- Healthcare and long-term care expenses
- Emergency expenses
- Supplemental retirement cash flow
- Getting a handle on higher-interest debt
The available credit line may grow over time
One of the most unique features of a HECM line of credit is that any unused portion of the credit line may grow over time1, potentially increasing the amount that may be available to borrow in the future.
The growth rate is tied to the loan’s adjustable interest rate plus the annual Mortgage Insurance Premium (MIP). As a result, the available line of credit may increase month by month, potentially providing a larger borrowing reserve later in retirement. Because growth rates are linked to interest rates, the available credit line may grow faster when interest rates are higher and more slowly when rates are lower. However, higher interest rates may also cause the loan balance on borrowed funds to grow more quickly.
Important: Line-of-credit growth is not interest paid to you, investment earnings, or taxable income. The growth only increases the amount you may be able to borrow in the future. It does not put money into your account unless you choose to draw funds from the line of credit.
Potentially lower borrowing costs than a lump sum
A line of credit may cost less than taking all available proceeds at closing because interest accrues only on the funds you actually borrow. If a borrower leaves part of the credit line unused, no loan interest is charged on that portion.
For homeowners who want access to funds but do not need all of their available proceeds immediately, a line of credit may provide a more efficient way to use home equity.
Your available credit cannot be reduced due to falling home values
For HECM reverse mortgages, the available line of credit cannot be frozen, reduced, or canceled simply because home values decline, provided you continue meeting your loan obligations. This sets the reverse mortgage LOC option apart from a HELOC, where your available funds can be reduced if your home loses value.
→Learn more about HELOCs in our guide: HELOC pros and cons: What borrowers need to consider.
What are the disadvantages of a reverse mortgage line of credit?
A reverse mortgage line of credit offers flexibility, but it is not the right solution for every homeowner. Before choosing this payout option, it’s important to understand its limitations and long-term costs.
Only available with adjustable-rate reverse mortgages
A reverse mortgage line of credit is only available with an adjustable-rate HECM and some proprietary reverse mortgages. Homeowners who choose a fixed-rate reverse mortgage typically receive their funds as a lump sum at closing and do not have access to a line of credit later.
This means choosing a line of credit also means accepting an adjustable interest rate, which may change over time and could mean your loan balance grows faster when interest rates go up.
Higher upfront costs
Reverse mortgages generally have higher upfront costs than many other home equity borrowing options. Depending on the loan, borrowers may pay:
- Origination fees
- Closing costs
- Initial mortgage insurance premiums
- Servicing-related fees, where applicable
Because of these costs, a reverse mortgage line of credit is often better suited for homeowners who expect to remain in their homes for several years.
→ Learn more about reverse mortgage costs and fees.
Available credit is not unlimited
The amount available through a reverse mortgage line of credit is determined when the loan closes based on factors such as the borrower’s age, the home’s value, current interest rates, and FHA lending limits. Once the available proceeds have been used, borrowers generally cannot increase their credit limit simply because their home appreciates in value.
Different than a traditional revolving credit line
With a credit card or many HELOCs, borrowers can borrow, repay, and borrow again up to their credit limit. A reverse mortgage line of credit also allows voluntary repayments, which may restore available borrowing capacity, allowing you to borrow again as long as you continue to meet the loan terms.
The loan balance grows over time
Interest and mortgage insurance charges accrue on borrowed funds, causing the loan balance to increase over time. As the balance grows, home equity typically decreases. For homeowners who plan to leave their home as part of an inheritance strategy, this reduction in equity is an important consideration.
Borrower obligations still apply
Although no monthly mortgage payments are required, borrowers must continue to:
- Pay property taxes
- Maintain homeowners insurance
- Keep the home in good repair
- Live in the property as their primary residence
Failing to meet these obligations may result in the loan becoming due and payable.
The loan eventually becomes due
A reverse mortgage is not intended to be a permanent source of financing. The loan generally becomes due when the last remaining borrower sells the home, passes away, permanently moves out of the home, or fails to meet the loan terms.
At that point, the loan must be repaid, usually through the sale of the home—though heirs may choose to repay the loan to keep the home.
→ Learn more: Are heirs responsible for reverse mortgage debt?
A line of credit may not be ideal for short-term needs
Because of the upfront costs associated with a reverse mortgage, homeowners who need funds for only a short period may find other financing options more cost-effective. A reverse mortgage line of credit is often most beneficial for homeowners who plan to remain in their homes long term and want flexible access to home equity as retirement needs evolve.
How does a line of credit differ from other reverse mortgage payout options?
A reverse mortgage line of credit is one way to receive proceeds. Depending on the type of reverse mortgage and your financial goals, you may also be able to choose a lump sum, monthly payments for a set period, or monthly payments for as long as you live in the home.
Each option offers different advantages. A line of credit is often chosen by homeowners who want flexibility because borrowers can access funds when they need them and leave the remaining credit available for future expenses.
It’s also important to understand that not all payout options are available with every reverse mortgage. For example, a HECM line of credit and monthly payment plans are only available with adjustable-rate HECM loans. Fixed-rate HECMs generally provide proceeds as a lump sum at closing and do not offer a line of credit or monthly payment options.
The table below compares the most common reverse mortgage payout options.
| Option | Funds received | Best for | Main benefits | Interest rate format |
| Line of credit | As needed | Future expenses and financial flexibility | Unused line of credit may grow over time; interest only accrues on funds borrowed | Adjustable rate only |
| Lump sum | All available proceeds at closing | Large one-time expenses, debt payoff, or mortgage payoff | Immediate access to funds; predictable proceeds | Generally fixed rate |
| Term payments | Monthly payments for a set number of years | Supplemental cash flow for short term | Predictable monthly cash flow for a defined period | Adjustable rate |
| Tenure payments | Monthly payments for as long as at least one borrower lives in the home and meets loan requirements | Supplement income long-term | Ongoing monthly cash flow without a defined end date | Adjustable rate |
When comparing options, think about both your current needs and your future plans. Homeowners who need a large amount of cash immediately may prefer a lump sum, while those concerned about future healthcare costs, home repairs, or unexpected expenses often choose a line of credit for its flexibility.
How a line of credit works in a HECM loan vs proprietary reverse mortgages
Both HECMs and proprietary reverse mortgages may offer a line-of-credit option that allows homeowners to access funds as needed rather than receiving all loan proceeds at closing. However, there are several important differences between the two types.
HECM line of credit
With a HECM line of credit, borrowers can withdraw funds as needed and only pay interest and mortgage insurance charges on the amount they actually borrow. One unique feature of a HECM line of credit is that the unused portion of the available credit may grow over time. This growth is based on the loan’s interest rate plus the annual mortgage insurance premium (MIP) renewal rate, potentially increasing the amount available to borrow in the future.
HECMs are also subject to federal safeguards and program requirements, including:
- All borrowers must generally be at least 62 years old.
- Borrowers must complete counseling with a HUD-approved counselor before obtaining the loan.
- The loan is federally insured and non-recourse, meaning neither the borrower nor their heirs will ever owe more than the home’s value when the loan becomes due and payable.2
- The available line of credit cannot be reduced or frozen simply because home values decline, provided the borrower continues meeting loan obligations.
Federal rules also limit how much of the available proceeds can be accessed during the first 12 months of the loan, unless additional funds are needed to pay off an existing mortgage or satisfy mandatory obligations.
Proprietary reverse mortgage line of credit
Proprietary reverse mortgages are private loans offered by individual lenders and are not insured by the FHA. Some proprietary reverse mortgage products offer line-of-credit options that function similarly to a HECM, allowing borrowers to access funds when needed instead of taking all proceeds upfront.
Depending on the lender and state, proprietary reverse mortgages may offer:
- Lower minimum age requirements, often starting at age 55 in some states.
- Higher borrowing limits for homeowners with high-value properties.
- Different payout options, credit line features, and loan terms.
Because proprietary reverse mortgages are not governed by the HECM program, features such as line-of-credit growth, borrowing limits, repayment options, and borrower protections may vary by lender. Make sure to carefully review the terms before choosing a loan.
How a reverse mortgage line of credit differs from a home equity line (HELOC)
A reverse mortgage line of credit and a home equity line of credit (HELOC) both allow homeowners to borrow against their home equity, but they work differently.
The biggest difference is repayment. A HELOC requires monthly payments, while a reverse mortgage line of credit does not require monthly mortgage payments as long as the borrower continues to meet the loan obligations.
Another key distinction is availability. Most HELOCs have a draw period of 5 to 10 years, while a HECM line of credit remains available for the life of the loan, provided the borrower continues to meet loan requirements.
HECM lines of credit also include protections not typically available with HELOCs. For example, the credit line cannot be frozen or reduced due to declining home values, provided the borrower remains in compliance with the loan terms.
| Feature | HECM line of credit | HELOC |
| Monthly payments required | No | Yes, after draw period |
| Available credit line growth | May grow if unused | Does not grow automatically; may be increased upon request |
| Impact of falling home values | Cannot be reduced due to home value declines for HECM; varies for proprietary reverse mortgages | May be frozen or reduced by lender at any time |
| Repayment | Due when a maturity event occurs | Repaid through monthly payments |
| Non-recourse protection | Yes | No |
For retirees who want flexible access to home equity without a monthly payment obligation, a reverse mortgage line of credit may be worth considering. Homeowners with sufficient income to make monthly payments may find a HELOC a better fit.
How to decide if a reverse mortgage line of credit is right for you
In general, a reverse mortgage line of credit may be a good fit for homeowners who want flexible access to their home equity without receiving all of their loan proceeds upfront.
Here are a few other indications that it may work for you:
- You want access to funds for future needs rather than getting all of it at one time.
- You expect expenses such as healthcare costs, home repairs, or long-term care needs later in retirement.
- You plan to remain in your home for the foreseeable future.
- You prefer to borrow only what you need, when you need it.
- You want the option to make voluntary repayments and potentially restore borrowing capacity.
- You value the potential growth of an unused HECM line of credit, which may increase over time.
A reverse mortgage line of credit may be less suitable for homeowners who need funds for only a short period, plan to move in the near future, or are primarily looking for the lowest-cost way to borrow against their home equity.
Wondering how much cash you might be able to access? Check out our reverse mortgage calculator—there’s no obligation to apply or proceed with a loan.
FAQs about a reverse mortgage line of credit
Can you repay and reborrow with a reverse mortgage line of credit?
Potentially, yes. You may make voluntary repayments at any time. For HECM reverse mortgages, repayments may restore available borrowing capacity, allowing you to access those funds again later. However, you are still subject to your loan terms.
What impacts your line of credit growth rate?
For HECM reverse mortgages, the growth rate is tied to the loan’s interest rate and annual mortgage insurance premium (MIP) charges. As these rates change, the amount of unused credit available may grow at a different pace.
What closing costs are there with a reverse mortgage?
Closing costs may include an origination fee, appraisal fee, title charges, recording fees, and other third-party closing costs. HECM reverse mortgages also include upfront mortgage insurance premiums. Learn more about reverse mortgage costs and fees.
Which is better, a reverse mortgage or a home equity line of credit?
Neither option is universally better. A HELOC may be a good fit for homeowners with steady income who can make monthly payments, while a reverse mortgage line of credit may appeal to older homeowners who want access to home equity without a required monthly mortgage payment.
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
What is the mortgage insurance premium (MIP)?
A mortgage insurance premium is a fee charged on HECM reverse mortgages. It helps fund FHA insurance, which provides borrower safeguards, including the loan’s non-recourse feature.
Non-recourse means that you, or your estate, can’t owe more than the value of your home when the loan becomes due and the home is sold. Non-recourse means that if you default on the loan, or if the loan cannot otherwise be repaid, the lender cannot look to your other assets (or your estate’s assets) to meet the outstanding balance on your loan.
How do I access funds from a reverse mortgage line of credit?
To draw funds, you submit a request to your loan servicer. Funds are typically sent by check or deposited into a bank account in the names of the borrowers on the loan.
Is the growth on my line of credit taxable?
No. The growth of an unused HECM line of credit is not taxable income because it is not income, and you do not receive any funds. It simply increases the amount you may be able to borrow in the future.
1Available only for HECM reverse mortgage loans with the line of credit option selected by the borrower.
2 Non-recourse means that you, or your estate, can’t owe more than the value of your home when the loan becomes due and the home is sold. Non-recourse means that if you default on the loan, or if the loan cannot otherwise be repaid, the lender cannot look to your other assets (or your estate’s assets) to meet the outstanding balance on your loan.
About the author
is the Web Content Manager at Finance of America and a journalist with more than 10 years of experience whose work has appeared in MoneyWise, MSN, Yahoo! Finance, and The Motley Fool. She specializes in making complex financial topics accessible and is passionate about advancing financial literacy.
Disclaimer
This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For tax advice, please consult a tax professional. For more information about whether a reverse mortgage fits into your retirement strategy, you should consult your financial advisor.
