Line of Credit Reverse Mortgage: What is a Reverse Mortgage Line of Credit and How Does it Work?

Reverse mortgages allow retired homeowners to tap into the equity they’ve built in their homes and use it as a method of funding their retirement. However, the way that the proceeds from the equity are disbursed can vary, and some companies — like GoodLife — allow borrowers to choose how they will receive their funds.

One way that a borrower can receive reverse mortgage funds is as a line of credit. A line of credit offers borrowers a flexible way to access funds backed up by the equity they have accrued in their homes.

What is a reverse mortgage line of credit?

A reverse mortgage line of credit is a method that reverse mortgage proceeds can be disbursed to a borrower. What does line of credit mean? Borrowers may receive the value of their loan as a lump sum, as monthly payments, or as a line of credit that they can withdraw from, similar to other lines of credit, like a credit card.

This option is attractive to many borrowers, as it allows them to access funds at the rate they need, in the situation they need — and so allows them to better manage how much of the value of their loan they have accessed and used.

How does a line of credit work in a reverse mortgage?

A reverse mortgage line of credit works similar to other lines of credit — it is a source of funds that you can withdraw from as needed. However, reverse mortgage lines of credit have a couple of important differences:

• Unlike a credit card or HELOC (home equity line of credit), a reverse mortgage line of credit does not require borrowers to make monthly payments until a maturation event (such as the death of the borrower, or the borrower moving out of the house). Find out more about the differences between reverse mortgages vs. HELOC on our blog.

• Reverse mortgage lines of credit actually grow over time based on the interest rates on your loan, including the mortgage insurance premium. That means that, if you are sparing on your usage of the line of credit, it could potentially become larger over time, giving you access to more funds. 

You are free to choose how you will use the funds you receive from your line of credit, whether that’s everyday expenses like groceries, medical expenses and home repairs, or even fun and hobbies that help you live the GoodLife in retirement. 

Do you need a line of credit for a reverse mortgage?

No, when you take out a reverse mortgage loan, you are free to decide how you receive the proceeds. This includes a line of credit, but could also be a lump sum or monthly payments. Reverse mortgages are built to be flexible, so no matter your retirement needs, you can find an effective way to fund them. 

To find out more about qualifying for a reverse mortgage, you can read through our reverse mortgage eligibility page, or download our free HECM guide.

You can also speak with a Reverse Mortgage Specialist, who will be happy to walk you through your options, including taking out a reverse mortgage line of credit.