HECM Loan: Home Equity Conversion Mortgage Loans
What is a HECM (Home Equity Conversion Mortgage) loan?
A Home Equity Conversion Mortgage, or HECM loan, is a Federal Housing Administration (FHA) insured reverse mortgage that allows homeowners 62 and older to access a portion of the equity in their primary residence, with funds available for any purpose and no required monthly mortgage payments (property taxes, insurance and maintenance required).
For older homeowners weighing reverse mortgage options in retirement, understanding how a HECM works can help you use home equity for expenses like home maintenance or everyday living costs while staying in your home. This guide explains how a HECM loan works, its benefits, who qualifies, how it compares with other reverse mortgages, what the application and counseling process involves, how repayment works and what responsibilities you keep as the homeowner.
How does a HECM loan work?
A HECM loan is an FHA-insured reverse mortgage that allows older homeowners to tap their home equity and use the funds for personal expenses, home maintenance and renovations, medical needs, lifestyle goals and more. HECM funds can be received as a lump sum, line of credit or term payments. To keep the loan in good standing, the borrower must continue living in the home as their principal residence, and keep current with property taxes, insurance and maintenance.
What are the benefits of a HECM loan?
- You stay in your home with your name on the title. You don’t need to sell it to access your funds.
- You still own your home and can leave it to your heirs. (The loan must be repaid when the last borrower no longer lives in the home, and the loan balance grows over time because interest and fees accrue, which can reduce remaining home equity.)
- No monthly mortgage payment required, with no required monthly mortgage payments or required monthly principal and interest payments, though you can choose to pay if you wish.
- You choose between an adjustable-rate loan or fixed-rate loan.
- If you choose an adjustable-rate loan, you can receive funds as a credit line with a growth factor, lump sum payment, monthly payments or a combination to support retirement cash flow, and that flexible repayment feature can also mean no monthly principal.
- Make the equity you’ve built up work for you.
- Maintain or establish financial self-reliance.
What’s the difference between a HECM and a reverse mortgage?
All HECMs are reverse mortgages but not all reverse mortgages are HECMs. A HECM is a reverse mortgage loan, but it differs from proprietary reverse mortgages.
- A HECM is one of the only reverse mortgages insured by the Federal Housing Administration (FHA), and is only available through an FHA-approved lender. Borrowers must be age 62 or older to be eligible. The FHA caps the home value it will use to calculate reverse mortgage loan proceeds each year. For 2026, the maximum claim amount is $1,249,125.
- Proprietary reverse mortgage products vary by lender and are generally available to borrowers aged 62 and older (minimum age of 55 in some states) with loan amounts up to $6 million depending on the state and product.
The age of the youngest borrower, the expected mortgage interest rate and the home value are the three main factors that determine which product is right for a borrower.
Who is eligible for a Home Equity Conversion Mortgage?
To be eligible for a HECM loan, the borrower must:
- Be at least 62 years old.
- Attend HUD-approved counseling (available at little to no cost) and receive a certificate of completion (required during the application process).
- Complete a financial assessment, which includes a review of your credit history, to confirm you can meet ongoing loan obligations.
- Live in the home as your principal residence.
- Have a mortgage balance low enough to be paid off with the HECM proceeds.
- Get the loan through a reverse mortgage lender that is an FHA-approved lender.
Eligible properties requirements
HECMs follow FHA property eligibility standards, so your home must be one of the following:
- Single-family home
- 2–4 unit home
- FHA-approved condominium
- Manufactured housing (must be on a permanent foundation)
HECM considerations
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Before you apply for a Home Equity Conversion Mortgage loan, you must first consult a HUD housing counselor. This will help you determine whether a HECM is right for your situation. Contact us for a list of independent counseling agencies.
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A HECM uses your home equity to provide you with funds, and the outstanding loan balance becomes due when the last surviving borrower dies, the borrower sells the home or the last remaining borrower moves out permanently. Because monthly interest payments are deferred and financed costs accrue interest, the loan balance increases over time. The home can be left to heirs, who can repay the loan either by selling the home, refinancing the loan or signing the deed over to the lender; HECMs are non-recourse loans, so if the loan balance exceeds the home’s value, FHA insurance covers the difference.
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You must keep paying property charges, including property taxes, homeowners or hazard insurance and HOA dues (if applicable), while also meeting the loan terms. You must also keep the home in good condition. Failure to meet these loan obligations can lead to foreclosure. HECMs include upfront and ongoing costs, including closing costs and mortgage insurance premiums.
HECM FAQs
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An equity conversion mortgage HECM is another unofficial name for a Home Equity Conversion Mortgage, which allows homeowners 62 and older to access home equity without monthly mortgage payments (property taxes, insurance and maintenance required).
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Yes, you can use reverse mortgage funds to pay for your property taxes and homeowners insurance. You must keep current with property taxes, insurance and maintenance to keep the loan in good standing.
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The amount of equity accessible depends on factors like your age, property value, interest rates and existing mortgage balance. Our reverse mortgage calculator can help estimate how much you may be eligible for.
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Yes, there are several. Reverse mortgages are non-recourse loans, meaning that borrowers will never owe more than the appraised value of their home when the loan is repaid. Mortgage insurance provides added protection, guaranteeing non-recourse terms and ensuring borrowers receive payments as outlined in the loan agreement.
As part of the application process, counseling from HUD, AARP or other reputable organizations is required to ensure a thorough understanding of the loan terms. For loans with adjustable interest rates, caps are in place to limit rate changes within specific periods, offering some stability to borrowers.
Additionally, borrowers receive a Good Faith Estimate detailing loan costs and fees upfront. Protections are also in place for non-borrowing spouses; if the borrowing spouse dies or moves out, the non-borrowing spouse can continue to live in the home without needing to repay the loan, as long as they meet the loan obligations.
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No, there are no required fixed monthly payments; interest accrues and is added to the loan balance over time. You must stay current on your property taxes, insurance and maintenance throughout the life of the loan.
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Yes, HUD-approved reverse mortgage counseling is mandatory before applying to ensure you understand the loan’s terms and responsibilities.
