For many retirees, the home is one of the largest assets they own, and it often sits outside the plan entirely. A HECM reverse mortgage line of credit can work as a standby asset beside a portfolio, and peer-reviewed research in the Journal of Financial Planning has looked closely at when that helps and when it doesn't. We work with advisors to model those options for specific clients, explain them in plain English, and say so when a reverse mortgage isn't the right fit. You stay the quarterback of the relationship, and we don't pay referral fees or give anything of value for referrals.
I've worked with financial advisors for a long time, and the conversation usually starts the same way. "My client has a paid-off house and a portfolio. Why would they ever borrow against the house?"
It's a fair question, and it's a good one. This page is my honest answer: what a reverse mortgage line of credit can do inside a retirement plan, what the research says, where it falls short, and how we work with you without getting in the way of your relationship.
Most retirement plans treat the house as a place to live and nothing more. That's understandable. But for a lot of clients, the equity in the home is a large, illiquid asset that isn't correlated with the stock market.
That's the key. When the market drops early in retirement, selling investments to fund spending locks in losses at the worst time. Advisors know this as sequence-of-returns risk. The usual fixes, a big cash bucket or a bond ladder, work, but they're a drag on long-term returns.
A HECM line of credit gives the client a second place to draw from when markets are down, so the portfolio isn't forced to sell low. That's the whole idea of the standby strategy. For the long version, read Standby Reverse Mortgage Strategy: What Advisors Miss.
This is where I'd rather hand you citations than adjectives. All of these appeared in the Journal of Financial Planning.
That is not a sales pitch. That is a body of evidence.
I'd be doing you a disservice if I only quoted the good parts. The 2014 study is the most careful about the tradeoffs:
Those caveats are exactly why I'd rather model a real client than talk in averages.
Clients carrying a mortgage into retirement often pull from IRAs to make the payment, which can push them into a higher tax bracket. A HECM can pay off the existing mortgage, leaving no required monthly mortgage payments. The client must continue to pay property taxes and homeowners insurance, maintain the home, and meet the other loan terms.
Some clients use a HECM to cover living costs while they delay Social Security. It can work, but the loan has real costs. The Consumer Financial Protection Bureau published a report in 2017 warning that, for many people, the cost of the loan can outweigh the larger benefit. I agree it needs real numbers, not a rule of thumb. See The Reverse Mortgage Bridge to a Bigger Social Security Check.
Loan proceeds aren't income, so draws from a HECM line don't raise adjusted gross income the way IRA withdrawals do. In some years that can help a client manage tax brackets or Medicare premium thresholds. That's a conversation for the client's CPA, and I'll say so. Interest on a reverse mortgage generally isn't deductible, and even when IRS rules allow it, it can't be deducted until it's actually paid, usually when the loan is paid off.
Clients who want to downsize or move closer to family can use a HECM for Purchase to buy a home with a down payment and no required monthly mortgage payments afterward. They must continue to pay property taxes and homeowners insurance, maintain the home, and meet the other loan terms. That can preserve more of the portfolio than paying cash.
A line of credit can help pay for care that lets a client stay home longer. See Paying for In-Home Care With a Reverse Mortgage.
I'd rather tell you now than after you've raised it with a client.
For clients whose homes are worth well above the HECM lending limit, a proprietary (jumbo) reverse mortgage may provide more money. The programs we compare include Mutual of Omaha Secure Equity, Finance of America HomeSafe, Longbridge Platinum, Smartfi Choice, Nationwide Equities EquityPower, and MCM Holdings MCM Edge. Features differ a lot, and not all of them offer a growing line of credit. Proprietary programs in Washington don't offer a line of credit at all. For the standby strategy specifically, the HECM is usually the starting point. See Proprietary (Jumbo) Reverse Mortgages.
ZYNG Mortgage doesn't pay referral fees or give anything of value for referrals.
The unused part of a HECM line of credit grows at the same rate the loan balance grows: the note rate plus the annual mortgage insurance. It isn't interest earned. It's additional borrowing capacity. On an adjustable HECM, when rates rise, the growth rate rises too.
Not on a HECM, as long as the borrower meets the loan terms. That's a big difference from a bank HELOC, which can be frozen or reduced under Regulation Z in certain circumstances. See HECM vs. HELOC.
Only what they draw, plus interest, mortgage insurance, and financed costs. There are no required monthly mortgage payments. The client must continue to pay property taxes and homeowners insurance, maintain the home, and meet the other loan terms. Voluntary payments are allowed at any time, and on an adjustable line, paid-down amounts generally become available again.
The loan is repaid when the last borrower or eligible non-borrowing spouse leaves the home, usually from the sale. Heirs keep any equity left. If the home is worth less than the balance, the HECM is non-recourse: heirs don't pay the difference, and if they want to keep the home they generally pay the lesser of the balance or 95 percent of appraised value. See Reverse Mortgages and Heirs.
An unused line of credit isn't money the client has. Loan proceeds aren't income. For needs-based programs, money drawn and kept past the month received can count as a resource.
The research leans toward opening earlier rather than waiting, because the unused line grows over time. The caveats above matter, especially time horizon and upfront cost. I'd model both on the real client.
Origination, FHA mortgage insurance, and third-party closing costs, most of which can be financed. A slightly higher margin with lower upfront costs can make sense for a standby line the client may not touch for years. See Reverse Mortgage Costs and today's rates.
No. We don't pay referral fees or give anything of value for referrals. What we offer is a straight answer and a loan officer who does what they say.
If you have a client in mind, call us at 530-888-6000 or book a call. Bring the facts, and we'll run the numbers together.
For the full research discussion, read Standby Reverse Mortgage Strategy. See also Partner With Us.
ZYNG Mortgage, Inc., NMLS #76801. A reverse mortgage has no required monthly mortgage payments and uses your home's equity. Fees, mortgage insurance and other costs can be added to the loan balance, and the balance grows over time as interest is added, so your equity typically decreases. When the loan becomes due, the home may need to be sold, or the loan repaid from other funds. Interest is not tax-deductible until it is paid, in part or in full. You keep title to your home and must keep paying property taxes, homeowners insurance and upkeep, and meet the other loan terms; not doing so can make the loan due and could lead to foreclosure.
This material is not from HUD or FHA and was not approved by HUD or a government agency.
