A HECM reverse mortgage is a unique home loan designed for older homeowners who want to access their home equity without selling or making monthly mortgage payments. “HECM” stands for Home Equity Conversion Mortgage, a program insured by the Federal Housing Administration to help people age in place and gain financial flexibility.
Unlike a traditional mortgage where you pay the lender, a reverse mortgage lets the lender pay you, either all at once, over time, or as a line of credit. But how do these loans actually work, and are they the right fit for you?
Let’s take a closer look at how most reverse mortgages function, who qualifies, and what you should consider before moving forward.
A reverse mortgage is a loan that lets homeowners age 62 or older to borrow money using their home as collateral. You keep the title to your home, but instead of making payments, you receive them. The money you get adds to your loan over time and is paid back when you move out, sell the home, or pass away.
Home Equity Conversion Mortgages are the most common type, backed by the federal government. There are also proprietary reverse mortgages, which are offered by private lenders and may be better suited for high-value homes.
For a breakdown of official terms and requirements, visit the HelpWithMyBank.gov HECM resource.
A home equity conversion mortgage (HECM) uses the equity you’ve built in your home to offer loan funds. The amount you’re eligible for depends on:
The older you are and the more equity you have, the more you can typically borrow.
To calculate your potential loan amount, try using the Reverse Mortgage Calculator.
To qualify for a HECM, borrowers must meet specific rules:
If you’re not sure whether your property meets the eligibility standards, check out Does My Home Qualify for a Reverse Mortgage? for a detailed breakdown of the requirements.
If you’re married, both spouses should be listed on the loan to protect the non-borrowing spouse. This 2332ensures the surviving partner can remain in the home if one borrower passes away or moves into a care facility.
There are three main types of reverse mortgages:
Federally insured and the most common
Private loans with potentially higher limits for higher-value homes
Offered by local nonprofits or agencies for specific needs like home repairs or paying taxes
Varying types of reverse mortgages work in different ways; each loan type has its pros and cons. Not all reverse mortgages are regulated equally, so be sure to compare features carefully.
When setting up a reverse mortgage, you’ll choose between:
Your interest is added to the loan balance rather than paid out of pocket. Over time, the loan increases due to interest charged and other fees.
Many homeowners prefer the flexibility of ARMs, especially those using a growing line of credit to convert equity gradually over time.
HECMs include certain costs built into the loan:
These costs can add up, but they are not paid out-of-pocket. Instead, they are included in the loan itself.
To understand more about the costs and protections, read the National Council on Aging’s guide to reverse mortgages.
Getting started with a home equity conversion mortgage HECM is a structured process, and education is the first requirement. HUD mandates that all HECM borrowers complete counseling from a HUD-approved agency. This ensures borrowers understand the loan’s financial implications and long-term responsibilities.
You can schedule this session through a certified provider. To begin, visit Reverse Mortgage Counseling, where you’ll find guidance on preparing for your appointment and what documents you’ll need.
Once that’s complete, the application process includes the following:
You can choose how to receive your loan proceeds based on your needs: a lump sum, monthly payments, a credit line, or a combination. Use the Reverse Mortgage Calculator to run various scenarios and explore what works best for you.
Reverse mortgages are often used to convert equity into usable cash flow in retirement. Once the loan is set up, funds may be used for:
Because this loan does not require regular payments, it offers a valuable strategy to access wealth already built into your home.
However, the balance of the loan grows as interest and mortgage insurance premiums are added, and your equity decreases over time.
Even though you’re not making monthly mortgage payments, borrowers must meet key obligations to avoid triggering a loan default:
If the borrower fails to meet these terms, the lender may declare the loan due and payable. These are some of the most common reasons borrowers don't meet HECM requirements. In some cases, heirs may lose the home because taxes went unpaid or the borrower left the property.
To protect yourself and your family, be sure you understand the full list of obligations and have a plan to meet them throughout the life of the loan.
A reverse mortgage loan is typically repaid when:
The home is usually sold, and the proceeds are used to repay the outstanding loan balance. If the sale amount is less than the amount owed, the FHA insurance covers the difference. This makes the HECM a non recourse loan; your estate will never be responsible for more than the home’s value at the time of sale.
If the sale brings in more than the balance owed, the remaining equity goes to the heirs.
Some seniors consider refinancing into a traditional FHA mortgage instead of taking out a reverse mortgage. This option may be preferable if:
However, a traditional mortgage requires monthly payments, while a reverse mortgage does not. That trade-off makes HECMs attractive for those with limited cash flow.
Reverse mortgages can also be compared with a home equity loan or HELOC. These options may be suitable if you can afford monthly payments and want to preserve more long-term equity.
Visit Reverse Mortgage vs. Home Equity Loan: Which is Better? for a detailed comparison of how different loan types stack up.
Here’s a quick breakdown of the main benefits and drawbacks of home equity conversion mortgages:
Pros:
Cons:
To weigh all considerations carefully, check out What You Should Know About the Pros and Cons of Reverse Mortgages.
One of the biggest advantages of a reverse mortgage is flexibility in how you receive your funds. Borrowers can choose between fixed and ARMs based on their financial goals.
Many borrowers choose an ARM with an LoC to preserve flexibility. Even better, unused credit lines grow over time, increasing your borrowing power.
An LoC can also act as a buffer against rising expenses or unexpected home repairs. Used responsibly, it can help older homeowners save money by reducing reliance on other, more costly debt sources.
A reverse mortgage loan becomes due when:
Once the loan is due, the home is typically sold, and the proceeds go toward paying off the balance of the loan. If the home sells for more than what is owed, the remaining equity goes to your heirs.
If it sells for less, FHA insurance covers the gap. This ensures that reverse mortgage loans remain non recourse; you or your family will never owe more than the home’s market value at the time of sale.
For additional consumer protections and regulatory updates, refer to the CFPB’s reverse mortgage guide.
The reverse mortgage market has grown significantly over the last decade, with thousands of HECM loans issued annually. As retirement costs increase and pensions become rarer, more homeowners are looking for ways to unlock home equity while remaining in their homes.
However, the market has also seen increased regulation to protect borrowers. Updated counseling rules, stricter appraisal standards, and servicing oversight have all helped reduce abuse and confusion.
Still, not all reverse mortgages are created equal. Some proprietary reverse mortgages are marketed aggressively to seniors without explaining the long-term consequences. That’s why proper counseling and education are essential.
Modern HECMs include several protections for borrowers and their families:
These protections, combined with federal oversight, help reduce the risk of foreclosure or default. However, borrowers must remain aware of all responsibilities. Failing to pay property taxes or maintain insurance can still result in foreclosure, even with these safeguards in place.
Before committing, consider these alternatives to a reverse mortgage:
Each option has trade-offs. The right fit depends on your income, goals, and whether you want to leave the home to your heirs.
A HECM reverse mortgage is a financial tool, not a one-size-fits-all solution. It may be ideal if:
It may not be right if:
Before making a decision, speak with a HUD-approved counselor. Get a second opinion from a financial advisor or family member, and use online tools to explore the numbers.
If you’re considering a reverse mortgage, Credit.org has resources to help:
Don’t rush the decision; take time to understand all your options and responsibilities. Reverse mortgages can be a powerful tool for financial freedom when used wisely.
