The Best Time to Start a Reverse Mortgage Was Yesterday. The Second Best Time Could Be Today.

When asked about reverse mortgages, the most advisors’ first response is, “my clients don’t need one of those.”  This is largely due to the common belief that a reverse mortgage is something you set up when the money runs out. A last resort.  A crisis tool.  A path you hope to never have to cross. 

Like many things in financial planning, there are downsides to waiting.  Later has a cost. Hoping you never need it has consequences.  What if we thought that way about insurance?  You don’t buy life insurance hoping you get to collect it soon to maximize the ROI, you buy is as protection, risk mitigation.  Similarly, we encourage clients to begin investing sooner rather than waiting.  Why?  Because compounding interest gets more favorable the sooner you start the compound, and the longer is has to grow.  

News flash to most, the Home Equity Conversion Mortgage (HECM), a type of reverse mortgage commonly structured as a line of credit, carries many of these characteristics. 

The Feature That Changes Everything

The HECM credit facility doesn't work like a traditional home equity line.

The credit line increases over time at a rate equal to the loan's note rate plus the FHA annual mortgage insurance premium, whether the client draws from it or not.  We’re not talking about interest accruing; we’re talking about your total available credit increasing each month.

As an example, at a 6.5% note rate plus 0.5% MIP, that's a 7.0% annual growth rate, compounding monthly, on whatever portion of the line remains unused.  The line doesn't care what the stock market is doing.  It doesn't care what happens to home values.  It just grows.

And unlike a traditional HELOC, which a bank can freeze, reduce, or eliminate at any time, as long as borrowers follow the terms of the loan, a HECM credit line cannot be taken away once established.  That's not a sales point. That's a structural feature with notable planning implications.

Curious?  Let's run some math…

Two Clients. Same House. Different Outcomes.

The assumptions:

• Home value at age 62: $850,000
• Home appreciation: 4% per year
• Credit line growth rate: 7.0% (6.5% note rate + 0.5% MIP), compounded monthly
• Upfront costs financed into loan: initial MIP (2% of eligible value), origination fee, estimated closing costs, title, escrow, etc.
• All other program terms held constant

These are illustrative figures. Actual amounts depend on the borrower's age, home value, interest rates at origination, and existing liens. Request a customized illustration for client-specific numbers.

Client A opens the HECM credit line at age 62.

The amount lenders can lend is based on HUD’s lending limits, which are determined by the youngest borrower’s age and current interest rates.  In this case,

Gross credit facility (HUD factor: 33.4% × $850,000): $283,900
Less estimated upfront costs financed into loan: ($26,000)
Net available credit line at opening: $257,900

She draws nothing. She simply lets the line grow.

As you can clearly see, available credit increases year over year. 

Client B waits until age 75.

Her home has appreciated at 4% per year for 13 years.  It's now worth $1,415,312, nearly $566,000 more than when Client A opened her line.  Naturally, that will allow the lender to approve a higher credit limit since the value of the collateral asset (the home) is higher. 

She's also older. The HUD credit factor is more favorable at her age.  They will lend more to older borrowers since they assume the loan will have a shorter duration. 

So, which is better?  Waiting 13 years and benefitting from older age calculations and (hopefully) increased home values?  Or staring the line earlier and allowing it to compound each month? 

There’s another wrinkle in the comparison.  Under today’s rules, the FHA maximum lending limit is $1,249,125.  That means the program doesn't calculate her credit line on full value of $1,415,312, it calculates it on $1,249,125.  Historically, this limit has increased over the years, we’ll address that shortly. Assuming all stays the same,

Gross credit facility (HUD factor: 42.1% × $1,249,125): $525,882
Less estimated upfront costs financed into loan: ($33,983)
Net credit line at opening: $491,899

Here's where it gets uncomfortable

At age 75, Client B opens her credit facility with $491,899 available.

Client A. who never touched her line, is sitting on $639,015.

Let's be clear about what happened.

Client B's home appreciated by $566,000.
Client B qualified for a more favorable HUD factor at her age.
Client B had every structural advantage on paper.

And she has $147,000 less available at 75 than the client who opened early and waited.

By age 80, that gap widens to $208,555.
By age 85, it reaches $295,650.

Not because of anything either client did wrong.  Simply because of when the clock started, and in most cases their awareness of all solutions available to them. 

What’s are some of the things happening to families when they get into their 80s?  Medical expenses?  Or if they’re in good health, wanting to prioritize travel with family and friends? 

Could an extra $200,000 cushion make a difference?  

That is the cost of waiting.

A Note on the FHA Lending Limit

The FHA maximum lending limit for HECM loans has increased meaningfully in recent years, rising from $970,800 in 2022 to $1,149,825 in 2024 to $1,209,750 in 2025.* Whether limits continue to rise, and whether they keep pace with home appreciation in a given market, is uncertain.

For illustration purposes, we held the limit constant. That is the conservative and compliance-appropriate assumption.

If the limit does increase over time, Client B's credit facility would be larger than shown above. The gap narrows but does not close. Even at Client B's full uncapped home value, 13 years of compounding gives Client A, an $80,000+ advantage at 75 that grows to over $160,000 by 85.

Either way, the early mover wins.

Source: U.S. Department of Housing and Urban Development, Mortgagee Letters 2022-21, 2023-21, 2024-21.

“But they don't need the money yet”

Exactly. That's the point. 

You don’t need retirement savings at age 30, but we all know that starting the compound early will create a larger benefit in the future. 

Opening the credit line early isn't about drawing from it. It's about starting the clock on compounding, and preserving optionality for when it matters most. And by the way, she had access to that credit line for a full 13 years if she needed it for any other purpose.  She also didn’t have to qualify later, run the risk of real estate values decreasing, or even consider if the program would be the same in 13 years. 

Risk reduced, options created. 

Think about how a sophisticated borrower approaches a 30-year vs. 15-year mortgage.  The rates are similar. The costs are comparable. So, they choose the 30-year; not because they plan to take 30 years to pay it off, but because they want flexibility. They can always pay it down on a 15-year schedule. But they're not locked into it. Flexibility. 

The HECM credit facility works the same way.

Clients can make voluntary payments whenever they choose.  Every payment reduces debt and increases your available credit line, which also continues to grow.  No required payment schedule.  No penalty.  No obligation. 

Flexibility.  Options.  And a larger pool to access in the future.

The line is there if markets drop.  It's there if healthcare costs spike.  It's there if a year goes sideways and the portfolio shouldn't be touched.  And by doing it sooner, you’re likely to have more available to bridge the gaps of uncertainty that are certain to show up. 

As we were taught in wilderness preparation, better to have it and not need it, than to need it and not have it.

The Takeaway for Advisors

This isn't about recommending a reverse mortgage to every client.  It's about recognizing that for clients who are 62 or older, own their home, and plan to remain in it, the decision of when to evaluate a HECM credit facility is a legitimate planning decision with a real, quantifiable cost if deferred.  The math is straightforward.  The research is documented.  The tool is available.

What varies is whether the conversation happened. 

You need to ask yourself, what’s keeping you from having that conversation? 

You don’t fully understand how they work?  No, problem, you’re not alone.  Learn it.  You’re scared your clients will think you’ve lost your mind?  I hear you, I had the same concern.  My advice? Have some courage, get over it.  Do the right thing by your clients.  Evaluate all options, and don’t be shy to share those that could have a positive impact, no matter how far-fetched.  Demonstrate the outcomes, then let them decide.   

See the Numbers for Your Client

Every situation is different. Home values, ages, existing mortgages, and current program terms all affect an illustration.

Equity Wealth Strategies works exclusively with financial professionals to build complimentary, customized credit line illustrations; designed to show exactly how housing wealth fits within a broader retirement income plan.

Request a Complimentary Illustration →

Or join us for our next Advisor Insight Series session, where we walk through real-world cases and the math behind them.

Register for the Next Session →

No pressure. No agenda. Just the numbers and perspective. 

This material is intended for financial professionals and is educational in nature. It does not constitute financial, legal, or tax advice. All figures are illustrative and based on approximate HUD credit factors at a 7.0% effective rate (6.5% note rate + 0.5% annual MIP). Upfront cost estimates include 2% initial MIP applied to the lesser of appraised value or the FHA lending limit, origination fee capped at $6,000, and approximately $3,000 in closing costs, all assumed financed into the loan. The FHA maximum lending limit used in Client B's scenario is $1,249,215, held constant for conservative illustration purposes. Actual credit line amounts will vary. HECM borrowers must continue to meet loan obligations including payment of property taxes, homeowner's insurance, and property maintenance.

Sources: Pfau, Wade D. "Incorporating Home Equity into a Retirement Income Strategy." Journal of Financial Planning, April 2016. Sacks, Barry H. and Stephen R. Sacks. "Reversing the Conventional Wisdom: Using Home Equity to Supplement Retirement Income." Journal of Financial Planning, February 2012. HUD HECM credit factors at effective rate 7.0%. U.S. Department of Housing and Urban Development Mortgagee Letters 2022-21, 2023-21, 2024-21 (annual lending limit adjustments).

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