Last Reviewed June 30, 2026

Most financial advisors have a mental file for the reverse mortgage, and it sits in the same drawer as the timeshare and the annuity nobody wanted. It is the thing you reach for last, after the portfolio is gone and there is nothing else left to sell.

The peer-reviewed planning research says that instinct is the expensive one. Used the way the research describes, a reverse mortgage line of credit set up early and left untouched can lift the odds that a client’s money outlasts them, without taking anything away from the heirs. The strategy has a name, the standby reverse mortgage, and it has been sitting in the Journal of Financial Planning for more than a decade.

This article breaks down the standby reverse mortgage strategy: what the research found, how the line of credit actually grows, and a real case study where opening early beats waiting by a wide margin, even after the home appreciates past a million dollars. If you advise clients who are 62 or older with real home equity and a portfolio you are working to protect, this is the layer most of your competitors have not built.

Why do most advisors treat the reverse mortgage as a last resort?

The reverse mortgage earned its reputation in an earlier era. The upfront costs were high, the marketing was aimed at people in distress, and the product was sold as a way to rescue a retirement that had already run into trouble. That framing stuck, and it became the default in a lot of planning conversations.

The product changed, and the research moved with it. Lower-cost options arrived, and academics started asking a different question. Instead of “how do we rescue a failed plan,” they asked “what happens if we put this in early, on purpose, as a deliberate part of the distribution strategy.” The answer surprised the people who ran the numbers, and it is the reason this strategy deserves a second look.

What is sequence-of-returns risk, and why does it matter here?

You already know this one, but it is worth stating plainly because it is the whole reason the standby line has value. Sequence-of-returns risk is the danger that the order of a client’s returns, not just the average, decides whether the plan survives.

Picture two clients who both average seven percent over a thirty-year retirement. The first gets their bad years early and their good years late. The second gets the same returns in the opposite order. The second client can die with millions while the first runs out in their eighties. Same average, different order. The difference is that the first client was selling assets at a discount in the early years to fund spending, and those shares never got the chance to recover.

A client who can avoid selling into a decline sidesteps the worst of this. The question is where the money comes from in those down years if not the portfolio.

Why don’t a HELOC and a cash bucket solve the problem?

The two conventional answers both have a weakness.

The cash bucket works, but it is a drag. Holding a year or two of spending in cash and short bonds means that money earns almost nothing in every good year, which is most years, and that quietly pulls down the return on the whole plan.

The home equity line of credit looks cleaner on paper, until you remember what happened to it in 2008. Harold Evensky built his practice around keeping client cash reserves so he would never have to sell into a downturn. Then the financial crisis hit, and many banks did what banks do when they get scared. They froze and cancelled home equity lines. The liquidity vanished at the exact moment his clients needed it.

That experience is what sent Evensky and his colleagues at Texas Tech into the research. There is one line of credit a lender cannot freeze, cannot reduce, and cannot call, as long as the homeowner keeps up their end of the deal. The reverse mortgage line of credit. That is the standby asset. You set it up, you leave it alone, and it is there in the down years so the client draws from the house instead of the portfolio.

What does the research say about the standby reverse mortgage strategy?

This is where it helps to hand over the citations, because none of this comes from a lender. It is peer-reviewed, published in the Journal of Financial Planning, and written by people with no loans to sell.

Sacks and Sacks (2012). Barry and Stephen Sacks tested three ways to use home equity in retirement: the conventional last-resort approach, and two active approaches that coordinate draws from the line with what the market is doing. They found that a client’s remaining net worth after thirty years, the portfolio plus whatever is left in the home, was substantially more likely to be higher under the coordinated approach than under the last-resort approach. The last-resort instinct, the one most advisors were trained on, was the weakest of the three.

Salter, Pfeiffer, and Evensky (2012 and 2013). This is the Texas Tech team that named the standby reverse mortgage. They concluded that a standby line deserves a seat in mainstream planning for four reasons: it reduces how much dead cash a client needs to hold, it lets the client ride out a bear market without selling, it opens the home as a real income source, and it can improve portfolio survival without necessarily reducing what is left for the heirs. In their follow-up work, they estimated that the standby strategy reduced shortfall risk meaningfully compared with a strategy that did not use the line, while leaving legacy wealth at the thirty-year mark largely intact.

Wade Pfau. Pfau, who is about as close to a neutral authority as this field has, ran his own analysis and landed in the same place. The line of credit works as a buffer asset, and the value comes from establishing it early.

Three separate research teams, different methods, no products between them, all pointing the same direction. That is not a sales pitch. That is a body of evidence. The full citations are at the bottom of this article.

How does a reverse mortgage line of credit grow?

Here is the mechanism that almost nobody outside the reverse mortgage world understands, and it is the part that makes the timing matter.

The portion of the line a client has not borrowed against grows over time, on its own, whether the house goes up in value or down. It compounds at the same rate a borrowed balance would be charged, which is the actual interest rate on the loan, the note rate, plus the ongoing mortgage insurance premium. It keeps climbing for as long as the line sits there unused.

Pfau described this as an unintended advantage in the program design. The program was built on the assumption that people would spend the money. When a client opens the line early and leaves it alone instead, that growth works entirely in their favor. The available credit a client can draw on at 75 can be far larger than the line they opened at 62, with no payments made and nothing borrowed.

Case study: does opening early really beat waiting?

This is the objection every sharp advisor raises, and it is a good one. If the client waits, the home is worth more later, so they qualify for a bigger line down the road. Why set it up at 62 when the house will be worth more at 75?

The numbers answer the question. Take a client at 62 with a home worth $650,000 and assume four percent annual appreciation, which is the only fair way to run this comparison. The expected rate is 6.75 percent. The only thing that changes between the two strategies is when the line is opened.

Look at what happened. The client who waited until 75 qualifies for a much bigger starting line, $414,231, because the home appreciated to over a million dollars and because the principal limit is higher at an older age. On the surface, waiting looks like the smart move.

But the client who opened at 62, back when the home was worth only $650,000, and simply left the line alone, watched that line compound for thirteen years up to $482,228. That still beats the fresh line on the million-dollar home by $67,997.

Read that again. A line opened on a $650,000 house outran a brand-new line opened on a house worth over a million. The growth on the credit line outpaced the growth on the home itself. That is the entire argument for starting early, in one number.

Figures are illustrations prepared for example purposes only and will vary by age, interest rate, and property value.

How do rates and margins affect the growth?

There is a nuance here that even people who use this strategy tend to get backwards, and it is worth understanding before you bring it to a client.

The instinct is that you always want the lowest rate. Lower rate, more money. And that is half true. The expected rate, the rate that decides how much a client can borrow up front, works exactly that way. A lower expected rate sizes the loan bigger and puts more money on the table at closing.

But that lower rate usually comes from a lower margin, the lender’s markup built into the rate, and the margin sits inside the growth rate too. So a lower margin gives a client a bigger line to start, but it grows slower. A higher margin gives a smaller line to start, but it grows faster. For a client who is going to let the line stand by and compound for fifteen or twenty years, the slower-growing bigger line can get passed by the faster-growing smaller one. The lowest rate is not automatically the best setup for a standby strategy. It depends on the client’s timeline, and it is the kind of thing you model out rather than assume.

Who is the standby strategy not right for?

This does not fit every client, and you should know the limits before you ever bring it up.

The most important one for your planning is the occupancy rule. The home has to stay the client’s primary residence. If they move out for more than twelve months in a row, into assisted living or memory care for example, the loan becomes due. For a client with a real near-term likelihood of needing long-term care in a facility, this is probably the wrong tool.

The client also has to keep paying the property taxes, the homeowners insurance, any HOA dues, and keep the home maintained. Those are the same obligations they have now. Missing them can trigger a default, but that is true of any mortgage, not something unique to a reverse mortgage. The standby strategy is for the client who has a reasonable expectation of staying in the home, who wants the portfolio to last, and who would rather not sell into a crash to fund ordinary spending.

What is the tax advantage of drawing from a standby line?

This is the layer the CPAs will appreciate, because it changes the math in a way that compounds with everything above.

When a client draws from the standby line, that money is loan proceeds. It is not income. It does not land on a 1040, it does not add to adjusted gross income, and it does not show up in the formulas that quietly tax everything else.

Compare that to the alternative in a down year. If the client pulls the same amount from an IRA, that withdrawal is ordinary income. It can push them into a higher bracket. It can increase the share of their Social Security that gets taxed. And because Medicare premiums are set off income from two years prior, a large withdrawal today can trigger an IRMAA surcharge on their premiums down the road.

So in a bad market, drawing from the standby line instead of the portfolio does two jobs at once. It keeps the client from selling investments at a loss, and it keeps that year’s income clean. For a client living close to a bracket line or an IRMAA threshold, that second job can be worth as much as the first. Clients should confirm the specifics with their own tax professional, but that coordination is the kind of thing that separates a plan from a guess.

There is a second use of the same standing line worth noting. It can fund the gap years so a client delays Social Security to 70 and locks in the larger benefit for life. That is a topic for its own article, and it is coming.

How advisors can put this to work

The strategy most advisors miss is not the reverse mortgage itself. Plenty of advisors know the product exists. What they miss is the timing. They file it as a last resort, when the research says it is a first move. Set the line up early, let it stand by, let it grow, and draw from the home in the years the market is against the client so the portfolio is left alone to recover.

If you have a client where this might fit, a homeowner 62 or older with real equity and a portfolio you are trying to protect, the most useful next step is to run the numbers on their actual situation. As a broker working with advisors on a referral basis, I can model the standby line against a client’s plan and show what the line looks like at open, how it grows, and how it changes their portfolio survival. You stay the quarterback of the relationship. I am the specialist you bring in for this one piece.

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Frequently asked questions

What is a standby reverse mortgage? A standby reverse mortgage is a home equity conversion mortgage line of credit that a homeowner opens early in retirement and leaves unused as a buffer. Rather than spending the money, the client keeps the line in reserve and draws from it during market downturns so the investment portfolio is not sold at a loss. The strategy was named and documented by researchers at Texas Tech University in the Journal of Financial Planning.

Does the reverse mortgage line of credit really grow if it is not used? Yes. The unused portion of the line grows over time at the same rate a borrowed balance would be charged, which is the note rate plus the ongoing mortgage insurance premium. This growth is independent of the home’s value and continues for as long as the line sits unused. It is the reason opening the line early can produce more available credit later than waiting.

Is it better to open a reverse mortgage line of credit at 62 or wait until later? In most modeled scenarios, opening early wins. In one illustration with a $650,000 home and four percent appreciation, a line opened at 62 grew to $482,228 by age 75, while a fresh line opened at 75 against the same home, now worth over a million dollars, came to $414,231. The compounding on the credit line outpaced the appreciation on the home. Results vary by age, rate, and property value.

Are reverse mortgage line of credit draws taxable? No. Funds drawn from a reverse mortgage are loan proceeds, not income, so they are not reported as taxable income and do not raise adjusted gross income. This is why drawing from the line in a down year, instead of from a taxable account like an IRA, can help a client manage their tax bracket, the taxation of Social Security, and Medicare IRMAA surcharges. Clients should confirm their situation with a tax professional.

Can the lender freeze or cancel a reverse mortgage line of credit? No. Unlike a traditional home equity line of credit, which lenders froze and cancelled during the 2008 financial crisis, a reverse mortgage line of credit cannot be frozen, reduced, or cancelled as long as the borrower meets their obligations. That reliability is what makes it useful as a standby buffer.

What are the obligations and limits a client needs to know? The home must remain the borrower’s primary residence. If the borrower is out of the home for more than twelve consecutive months, the loan becomes due. The borrower must also continue to pay property taxes, homeowners insurance, any HOA dues, and maintain the home. Failing to meet these obligations can lead to default, as with any mortgage.

Where can I see the research behind the standby strategy? The foundational studies are listed in the references below, including the work of Sacks and Sacks, the Texas Tech team of Salter, Pfeiffer, and Evensky, and Wade Pfau. All were published in the Journal of Financial Planning or in Pfau’s book on reverse mortgages.

References

• Sacks, B. H., & Sacks, S. R. (2012). Reversing the Conventional Wisdom: Using Home Equity to Supplement Retirement Income. Journal of Financial Planning, 25(2), 43–52.
• Salter, J., Pfeiffer, S., & Evensky, H. (2012). Standby Reverse Mortgages: A Risk Management Tool for Retirement Distributions. Journal of Financial Planning, 25(8), 40–48. https://www.financialplanningassociation.org/article/journal/AUG12-standby-reverse-mortgages-risk-management-tool-retirement-distributions
• Pfeiffer, S., Salter, J., & Evensky, H. (2013). Increasing the Sustainable Withdrawal Rate Using the Standby Reverse Mortgage. Journal of Financial Planning, 26(12), 55–62. https://www.financialplanningassociation.org/article/journal/DEC13-increasing-sustainable-withdrawal-rate-using-standby-reverse-mortgage
• Pfeiffer, S., Schaal, C. A., & Salter, J. (2014). HECM Reverse Mortgages: Now or Last Resort? Journal of Financial Planning.
• Pfau, W. D. (2016). Reverse Mortgages: How to Use Reverse Mortgages to Secure Your Retirement. Retirement Researcher Media.

AUTHOR BLOCK (WordPress author bio / schema Person)

Josh Borba is Co-founder, CEO, and President of ZYNG Mortgage, Inc. and the founder of Reverse Mortgage Advisors. He has 23 years in the mortgage business and more than 20 years specializing in reverse mortgages. As an independent broker, he originates the full reverse mortgage product landscape, including proprietary options starting at 55. He is licensed in AZ, CA, CO, FL, ID, MT, OR, TX, and WA.

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