The Growing Line of Credit: The Best-Kept Secret in Retirement Planning

Most people think of a reverse mortgage as a lump-sum loan. But one of its most powerful features is something very few people know about: the growing line of credit. For financial professionals and families planning for the future, this feature alone makes the reverse mortgage worth understanding.

How the Growing Line of Credit Works

When a senior opens a reverse mortgage and chooses the line of credit payout option, the unused portion of the credit line doesn’t just sit there. It grows every year at the same rate as the loan’s interest rate plus the annual mortgage insurance premium (currently 0.5% for HECMs).

This means that if your credit line is $200,000 today and the combined growth rate is 7%, the available credit line could grow to approximately $214,000 next year — without you doing anything.

Why This Matters for Care Planning

The growing line of credit is ideally suited for care planning because:

• Care needs escalate gradually. The line of credit grows to match increasing costs over time.
• You only pay interest on what you use. If you don’t draw from the line, you pay nothing.
• It’s an insurance policy for the future. Establish the line now while your parent is healthy, and it’ll be there when they need it.

A Hypothetical Example

Consider a 68-year-old homeowner with a home valued at $500,000. Based on their age and the current interest rate, their initial line of credit might be $250,000. If they don’t touch it for five years at a 7% growth rate, the line of credit could grow to approximately $350,000 — giving them $100,000 more in available funds for care expenses than when they started.

Compare that to taking a lump sum and putting it in a savings account, where it earns 4–5% — and the math clearly favors the growing line of credit.

Why Financial Professionals Should Pay Attention

The growing line of credit solves a real problem in retirement planning: the uncertainty of future care needs. By establishing a reverse mortgage line of credit early, clients have a guaranteed, growing source of funds that can be deployed when needed — without liquidating other investments or disrupting their portfolio.

For clients who are “house rich, cash poor,” this can be the difference between staying in their home with proper care and being forced to sell or move to a facility.