The Hidden Value of a Reverse Mortgage Standby Line of Credit

Several recent research articles published in the Journal of Financial Planning have investigated how opening a standby line of credit through a reverse mortgage and strategically spending from this line of credit can help improve the sustainability of retirement income strategies. In this article, I show that the benefits of opening a home-equity conversion mortgage (HECM) line of credit extend beyond meeting spending needs.

With the current HECM rules, those living in their homes long enough could reap a large windfall when the line of credit exceeds the home’s value. This potential windfall is amplified by today’s low interest rates. Even if the value of the home declines, the line of credit will continue to grow without regard for the home’s subsequent value.

Combining this with the fact that a HECM is a non-recourse loan means that the HECM provides a very valuable hedging property for home prices.


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