Product Guide
The HECM Line of Credit
A Credit Line That Grows Over Time
Why this matters
If you're 62 or older with significant home equity, you have access to a financial tool that doesn't exist anywhere else: a credit line that gets bigger over time, can never be taken away, and never requires a monthly payment. It's called the HECM line of credit, and it's the disbursement option that's getting the most attention from financial professionals.
You don't have to use it. You don't have to use it right away. In fact, many of the smartest strategies involve establishing the line early and letting it grow — creating a financial safety net that becomes more valuable with every passing year.
How the growth works
When you establish a HECM line of credit, any amount you don't immediately draw begins growing at the "effective rate" — the current interest rate on your HECM plus the 0.5% annual mortgage insurance premium. This growth is not based on your home's value — it happens regardless of what the real estate market does.
Growth illustration: $150,000 initial credit line at 7% effective rate
Illustrative only. Assumes constant 7% effective rate with no draws. Actual growth varies with rate changes.
Look at that last row: a $150,000 credit line nearly quadruples in 20 years. And remember — you haven't borrowed any of it. You pay zero interest on the unused portion. The growth costs you nothing.
What makes this different from a HELOC
People often compare the HECM line of credit to a Home Equity Line of Credit (HELOC), but they're fundamentally different products. The differences matter enormously for retirement planning.
It can't be frozen
During the 2008 financial crisis, banks froze millions of HELOCs overnight. Homeowners who were counting on that credit suddenly had nothing. A HECM line of credit cannot be frozen, reduced, or cancelled — your available credit can only increase, never decrease.
It grows automatically
A HELOC gives you a fixed credit limit that stays the same (or decreases). The HECM credit line grows every month you don't use it.
No monthly payments
A HELOC requires monthly interest payments during the draw period and principal-plus-interest payments during repayment. A HECM requires nothing — repayment happens when you leave the home.
Non-recourse protection
With a HELOC, the lender can pursue you (or your estate) for any shortfall. With a HECM, you or your heirs will never owe more than the home's value — even if you've drawn more than the home is worth.
Strategic uses for the HECM line of credit
Financial safety net
Establish the line now; use it only if needed. It's like insurance that grows more valuable over time — without premiums.
Market downturn buffer
Draw from the credit line instead of selling investments during bear markets. Avoid locking in losses and give your portfolio time to recover.
Social Security bridge
Use HECM draws to cover living expenses from 62 to 70, allowing you to delay Social Security and lock in a permanently higher benefit.
Long-term care reserve
A growing credit line can serve as a self-funded care reserve — available when needed, with no premiums and no medical underwriting.
Tax-efficient income
HECM draws are generally not taxable income. In years with high RMDs or capital gains, drawing from the HECM instead can keep you in a lower bracket.
The case for establishing it early
Because the credit line grows over time, there's a strong argument for setting it up as early as possible — even if you don't need it now. The upfront costs (primarily the initial mortgage insurance premium and origination fee) are a one-time investment that buys you a financial tool that becomes more valuable every year.
Think of it this way: if you establish a $150,000 credit line at 62 and don't touch it, you could have over $400,000 available by 77. That's not home equity appreciation — that's the credit line growing on its own, rain or shine, bull market or bear.
Financial advisors: see the technical case for HECM in retirement planning →