Key Takeaways
- A reverse mortgage line of credit grows over time with the loan’s interest rate and mortgage insurance premium, making valuable during inflation.
- Because reverse mortgage proceeds aren’t taxable, homeowners can use the funds without affecting income taxes, Social Security benefits or Medicare premiums.
- An unused reserve mortgage credit line can serve as a flexible reserve, offering liquidity during market downturns.
When prices rise and the value of the dollar falls, it can negatively impact your retirement plan. That’s because inflation reduces the purchasing power of savings, pensions, and investment income.
Many retirees look to traditional inflation hedges, like Treasury Inflation-Protected Securities (TIPS) or dividend-paying stocks, while completely overlooking their home equity. A reverse mortgage line of credit (RMLOC) can provide a growing, tax-free source of funds that actually becomes more valuable as interest rates rise.
In this article (Skip to...)
- What is a reverse mortgage line of credit?
- How a reverse mortgage line of credit growth rate works
- Video: Can a reverse mortgage relieve the pressure of rising costs?
- How a reverse mortgage compares to other inflation hedges?
- FAQ
What is a reverse mortgage line of credit?
A reverse mortgage allows homeowners age 62 and older to tap into their home equity without making monthly loan payments. The most common type is the Home Equity Conversion Mortgage (HECM), which is backed by the Federal Housing Administration (FHA). Borrowers can choose to receive the proceeds as a lump sum, fixed monthly payments, or as a line of credit.
Unlike a traditional home equity line of credit (HELOC), the available credit on a reverse mortgage grows over time, even if you never use it. This growth is guaranteed by the loan terms and cannot be reduced or canceled by the lender, assuming you meet your loan obligations, like paying the property taxes and homeowners insurance.
What experts are saying
Joshua Serrano, VP of Reverse Mortgages at West Capital Lending
“For a financially savvy retiree, the line of credit is an amazing tool. It grows over time and can be tapped when an opportunity comes up.”
How a reverse mortgage line of credit growth rate works
The growth rate on a reverse mortgage line of credit equals the current interest rate plus the annual mortgage insurance premium (MIP). That means if your reverse mortgage has a 6% interest rate and a 0.5% MIP, your available credit would grow by 6.5% annually, compounded each month.
See if you qualify for a reverse mortgage. Start hereHere’s what that might look like in practice:
| Year | Estimated Credit Line |
| 1 | $106,500 |
| 5 | $137,009 |
| 10 | $187,714 |
Inflation often leads to higher interest rates, which can reduce returns on cash and bonds. For borrowers with a reverse mortgage line of credit, higher rates increase the growth rate of the unused portion.
This means the credit line may expand more quickly during periods of rising living costs. For retirees who rely on investment withdrawals, this growing credit line can serve as a useful reserve during market volatility or high-expense years.
Tax-free compounding: a hidden advantage
Reverse mortgage proceeds aren’t considered taxable income, so drawing from your RMLOC doesn’t affect your taxable income, Social Security benefits, or Medicare premiums. This makes the RMLOC especially useful during:
- Market downturns (to avoid selling investments at a loss)
- Years where investment withdrawals would push you into a higher tax bracket
- Inflationary periods where expenses temporarily surge
It’s a way to create liquidity without disrupting your long-term tax or investment strategy.
Video: Can a reverse mortgage relieve the pressure of rising costs in retirement?
Using the reverse mortgage line of credit as a strategic reserve
Many financial planners recommend opening a reverse mortgage line of credit before you need it so it can grow into a meaningful financial buffer. Homeowners often use the reverse mortgage line of credit to:
- Cover rising living costs
- Pay for major home or medical expenses
- Pause investment withdrawals during down markets
For example, a 62-year-old who opens a $150,000 RMLOC today could see it grow to roughly $269,000 by age 72, assuming a 6% average growth rate. That reserve can provide peace of mind over a long retirement.
How a reverse mortgage compares to other inflation hedges
Homeowners often consider several approaches to manage rising costs in retirement. The chart below highlights when each option may be most effective, and how the reverse mortgage line of credit differs from other inflation-hedging tools.
See if you qualify for a reverse mortgage. Start here| Strategy | Inflation protection | Liquidity | Tax efficiency |
| TIPS or bonds | Indexed to inflation; taxable interest | Moderate | Taxable annually |
| HELOC | Fixed limit; can be frozen by lenders | High | Taxable if used for non-home purposes |
| Cash savings | Declines in real value during inflation | High | Tax-free growth unavailable |
| Reverse mortgage | Growth increases with interest rates | High | Tax-free access to funds |
Considerations before opening a reverse mortgage
A reverse mortgage line of credit can be valuable, but it isn’t right for everyone. To start with, you need to meet the following requirements:
- Be at least 62-years-old
- Live in the home as your primary residence
- Have sufficient home equity
- Stay current on your taxes, insurance, and maintenance
Growth only applies to the unused portion, and interest accrues on any funds you draw. A HUD-approved counselor or financial advisor can help you determine whether this strategy fits your long-term plan.
The bottom line on using a reverse mortgage as a line of credit
Inflation can challenge even the strongest retirement plans, but a reverse mortgage line of credit can help offset that pressure. By growing at a compounded rate, the RMLOC provides a tax-free, flexible reserve you can draw from when you need it. For many homeowners, it’s not just a borrowing tool, but a powerful way to protect their retirement from rising costs.
FAQ
Yes, many reverse mortgages (especially HECMs) let you take funds as a revolving line of credit. You can draw money as needed instead of taking a lump sum upfront.
A reverse mortgage line of credit works similarly to a HELOC, but you don’t have monthly mortgage payments. You borrow only what you need, when you need it, and interest accrues on the amount you use.
Yes, it can help cover everyday costs like groceries, utilities, medical bills, and other essentials. This can relieve financial pressure, especially for retirees on a fixed income.
No, you can leave the line of credit untouched and only pull funds when needed. This flexibility is one reason many homeowners use it as a financial safety net.
t can be, since it gives you access to home equity without requiring monthly mortgage payments. However, you still must keep up with property taxes, homeowners insurance, and home maintenance to stay in good standing.
