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Home Equity Conversion Mortgage (HECM) Overview

A Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, enables seniors to access a portion of their home’s equity without having to make monthly mortgage payments.¹

Homeowners can borrow against their home’s equity, receiving funds as a lump sum, line of credit, or monthly payments. The loan is typically repaid when they move, sell the home, or pass away. While they remain in the home, no monthly mortgage payments are required. In a reverse mortgage, the new loan pays off and replaces the existing mortgage.

The loan generally does not become due until the last surviving borrower permanently moves out of the property or passes away. At that time, the borrower or their heirs can choose to repay the reverse mortgage loan and keep the home, or sell the home to repay the loan. Any remaining equity is inherited by the estate. The estate is not personally liable if the home sells for less than the balance of the reverse mortgage. The loan may also come due if the borrower(s) no longer meet the loan obligations.¹

Benefits of a Reverse Mortgage Loan

A reverse mortgage loan may help you enjoy financial security and peace of mind, while allowing you to remain in your home during your retirement years.

You have the freedom to use the net proceeds however you choose. For example, you can use your proceeds to:

• Supplement your retirement income
• Consolidate debt
• Pay for medical care, prescription drugs, and in-home care
• Cover large or unexpected expenses
• Make home improvements

Eligibility Requirements

Key eligibility requirements for a reverse mortgage loan include:

• The youngest borrower on title must be age 62 or older (typically, though some options vary)
• The home must be your primary residence
• You must have sufficient equity in your home
• You must meet financial eligibility criteria as established by HUD
• You must complete a HUD-approved counseling session
• Your home must be a single-family residence, a 2–4 unit owner-occupied home, or an FHA-approved condominium or manufactured home that meets FHA requirements

Safeguards

Several safeguards are in place to protect homeowners:

• The HECM is a non-recourse loan. If you sell the home to repay the loan, you or your heirs will never owe more than the loan balance or the value of the property—whichever is less. No other assets must be used to repay the debt.
• Completing a mandatory counseling session with an FHA-approved counselor ensures borrowers have all the information they need before applying.
• Lenders must perform a financial assessment to evaluate the borrower’s ability to pay property taxes and insurance. If the assessment indicates potential difficulty, borrowers may be required to set aside loan proceeds to cover these costs. This regulation helps ensure borrowers can meet their obligations under the reverse mortgage loan.

You must live in the home as your primary residence, continue to pay required property taxes and homeowners insurance, and maintain the home according to Federal Housing Administration requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.

¹ While monthly mortgage payments are not required, borrowers must continue to meet all loan obligations, including property maintenance and payment of taxes and insurance.