What is a HECM Reverse Mortgage?
A Home Equity Conversion Mortgage (HECM) is a federally-insured reverse mortgage that allows homeowners aged 62 and older to convert a portion of their home equity into cash without selling their home or making monthly mortgage payments.
Instead of paying the lender each month, the lender pays you - or provides a line of credit you can draw from - while you continue living in your home. The loan doesn't need to be repaid until you permanently leave the home (sell, move to assisted living, or pass away).
🏠 You Retain Ownership: With a reverse mortgage, you still own your home and remain on the title. You're responsible for property taxes, insurance, and maintenance - but you make NO monthly mortgage payments.
HECM Benefits
💰
No Monthly Payments
No required monthly mortgage payments (you must maintain property taxes and insurance)
🏠
Stay in Your Home
Continue living in your home as long as you maintain it and pay property charges
💵
Tax-Free Proceeds
Loan proceeds are typically tax-free (consult tax advisor)
🔒
FHA-Insured
Backed by FHA - you'll never owe more than your home's value
🎯
Flexible Options
Choose lump sum, monthly payments, line of credit, or combination
👨👩👧👦
Protect Heirs
Non-recourse loan - heirs never owe more than home's value
💳
Eliminate Existing Mortgage
Pay off current mortgage and free up monthly cash flow
📈
Line of Credit Growth
Unused line of credit grows over time at current interest rate + 1.25%
HECM Eligibility Requirements
Age Requirements
- Minimum Age: 62 years old
- Multiple Borrowers: All borrowers on title must be 62+
- Younger Spouse: Non-borrowing spouse under 62 can remain in home but affects loan amount
- Higher Age = More Proceeds: Older borrowers qualify for higher loan amounts
Home Ownership & Equity
- Must be your primary residence
- You must own the home outright or have significant equity
- Existing mortgage must be paid off with reverse mortgage proceeds (or have very low balance)
- Must have sufficient equity based on home value and age
Property Requirements
- Eligible: Single-family homes, 2-4 unit properties (occupy one unit), FHA-approved condos, manufactured homes (if meets FHA standards)
- Not Eligible: Co-ops, most mobile homes, investment properties, vacation homes
- Property must meet FHA standards and be in good condition
- Must be primary residence - you must live there majority of year
Financial Requirements
- Sufficient income/assets to pay property taxes, insurance, HOA fees, and maintenance
- No delinquent federal debt
- Financial assessment to ensure you can maintain the home
- May require set-aside funds for taxes/insurance if financial assessment shows concerns
Counseling Requirement
- Mandatory: Must complete HUD-approved reverse mortgage counseling
- Can be done in person, by phone, or online
- Ensures you understand the loan, alternatives, and obligations
- Counseling fee: typically $125-200
- I can provide a list of approved counselors
How Much Can I Borrow?
The amount you can access (called the "principal limit") depends on several factors:
Key Factors Affecting Loan Amount:
- Age of Youngest Borrower: Older = more money available
- Home Value: Up to FHA limit ($1,149,825 in 2024)
- Current Interest Rates: Lower rates = more available proceeds
- Existing Mortgage Balance: Must be paid off first
- Upfront Costs: Origination, closing costs, and mortgage insurance
Principal Limit Factor (PLF)
The percentage of your home's value you can access varies by age:
| Age |
Approximate PLF* |
Example ($500k home) |
| 62 |
~52% |
~$260,000 |
| 65 |
~54% |
~$270,000 |
| 70 |
~58% |
~$290,000 |
| 75 |
~63% |
~$315,000 |
| 80 |
~68% |
~$340,000 |
| 85+ |
~72% |
~$360,000 |
*Approximate percentages. Actual PLF varies based on interest rates and specific program. Examples shown are before paying off existing mortgages and closing costs.
HECM Payment Options
You can choose how to receive your reverse mortgage proceeds:
1. Lump Sum (Fixed Rate)
- Receive all available proceeds at closing
- Fixed interest rate
- Best if you need funds for specific purpose (pay off debts, home repairs, etc.)
- Limited to 60% of principal limit in first year for new loans
2. Monthly Payments (Adjustable Rate)
Term Payments:
- Equal monthly payments for a fixed period (e.g., 10 years)
- Payments stop after the term ends
- Good for supplementing income for specific period
Tenure Payments:
- Equal monthly payments for as long as you live in the home
- Payments continue even if you exhaust available equity
- Guaranteed income for life (as long as you stay in home)
3. Line of Credit (Adjustable Rate)
- Access funds when you need them
- Unused portion grows at interest rate + 1.25% annually
- Most flexible option
- No required draws - use as little or as much as you want
- Cannot be frozen or cancelled (unlike HELOC)
- Popular for emergency funds and financial planning
4. Combination
- Mix monthly payments with line of credit
- Example: Monthly payments for income + line of credit for emergencies
- Customize to your specific needs
💡 Most Popular: The Line of Credit option is most popular due to its flexibility and growth feature. Many borrowers establish a line of credit and only draw when needed, allowing the unused portion to grow.
HECM Costs & Fees
Reverse mortgages have upfront costs and ongoing costs:
Upfront Costs
- Origination Fee: Greater of $2,500 or 2% of first $200,000 + 1% of amount over $200,000 (max $6,000)
- Upfront Mortgage Insurance Premium (MIP): 2% of home's appraised value
- Appraisal: $500-$800 (varies by location)
- Closing Costs: Title insurance, recording fees, etc. - typically $2,000-$4,000
- HECM Counseling: $125-$200
- Total Upfront: Typically 4-6% of home value
Good News: All upfront costs can be financed into the loan - you don't pay out of pocket!
Ongoing Costs
- Annual MIP: 0.5% of outstanding loan balance (included in interest accrual)
- Interest: Variable or fixed rate depending on payment option chosen
- Servicing Fee: Up to $35/month (if applicable, not all lenders charge)
Common Uses for HECM Proceeds
Eliminate Mortgage Payment
Pay off existing mortgage and eliminate monthly payments
Supplement Retirement Income
Monthly payments to cover living expenses
Pay for Healthcare
Medical bills, long-term care, in-home care
Home Repairs/Modifications
Age-in-place modifications, repairs, updates
Delay Social Security
Use HECM funds while delaying SS to increase benefits
Emergency Fund
Line of credit for unexpected expenses
Help Family
Financial assistance to children or grandchildren
Debt Consolidation
Pay off high-interest credit cards or loans
When Does the Loan Become Due?
The reverse mortgage becomes due and must be repaid when:
- The last borrower permanently leaves the home (moves, passes away)
- The home is sold
- The borrower fails to pay property taxes or homeowners insurance
- The borrower fails to maintain the property
- The property is no longer the primary residence for 12+ consecutive months
What Happens When Loan Becomes Due?
You (or your heirs) have several options:
Option 1: Keep the Home
- Pay off the loan balance (or 95% of appraised value, whichever is less)
- Can refinance into traditional mortgage
- Can use other funds to pay off loan
Option 2: Sell the Home
- Sell the property and pay off loan from proceeds
- If home sells for more than loan balance, keep the difference
- If home sells for less than loan balance, FHA insurance covers shortfall (non-recourse)
Option 3: Deed in Lieu
- Turn the home over to the lender
- Walk away with no further obligation
- No deficiency - you never owe more than home's value
🛡️ Non-Recourse Protection: You (or your heirs) will NEVER owe more than the home's value, even if the loan balance grows larger than the home's worth. This is guaranteed by FHA insurance.
Protecting Your Spouse
Eligible Non-Borrowing Spouse
If your spouse is under 62, they can be designated as an "Eligible Non-Borrowing Spouse" which allows them to:
- Remain in the home after your death without repaying the loan
- Continue to defer loan repayment as long as they maintain property charges
- Not receive additional loan proceeds after your death
Note: Having a non-borrowing spouse under 62 reduces the amount you can borrow (calculated based on younger spouse's age).
HECM for Purchase
Did you know you can use a reverse mortgage to BUY a home? HECM for Purchase allows you to:
- Purchase a new primary residence with no monthly mortgage payments
- Downsize and eliminate mortgage payment
- Move closer to family
- Relocate to a more suitable home (single-story, accessibility features)
Example:
Home price: $500,000
Your down payment required: ~$240,000 (48%)
HECM loan amount: ~$260,000 (52%)
Monthly payment: $0 (just taxes, insurance, maintenance)
This is ideal for seniors selling a larger home and downsizing with the proceeds.
Alternatives to Consider
A reverse mortgage isn't right for everyone. Consider these alternatives:
Home Equity Line of Credit (HELOC)
- Pro: Lower costs, can keep if you move
- Con: Requires monthly payments, can be frozen/cancelled
Cash-Out Refinance
- Pro: Lower rates, keep more equity
- Con: Monthly payments required
Downsizing
- Pro: Cash from sale, lower expenses
- Con: Must move, transaction costs
Family Loan
- Pro: Potentially better terms, keep money in family
- Con: Can strain relationships, informal agreements risky
State/Local Assistance Programs
- Pro: May be grants (not loans), lower costs
- Con: Limited funding, income restrictions, specific use requirements
Common HECM Myths vs. Facts
| ❌ MYTH |
✅ FACT |
| The bank owns your home |
You own your home and remain on title. The lender only has a lien. |
| You can lose your home |
You can't lose your home as long as you pay taxes/insurance and maintain the property. |
| Heirs inherit the debt |
Non-recourse loan means heirs never owe more than the home's value. |
| You can't leave home to heirs |
Heirs can keep the home by paying off the loan balance. |
| Proceeds affect Social Security/Medicare |
Reverse mortgage proceeds don't affect SS or Medicare (may affect Medicaid if you keep large cash balance). |
| Only for people desperate for money |
Many financially stable retirees use HECMs as a financial planning tool. |
Is a HECM Right for You?
✅ A HECM May Be Good If:
- You're 62+ and plan to stay in your home long-term
- You have significant equity in your home
- You need to eliminate mortgage payment to improve cash flow
- You want to supplement retirement income
- You need funds for healthcare or home modifications
- You want a standby emergency line of credit
- You're using it as part of comprehensive retirement plan
- You understand and accept the costs
❌ A HECM May NOT Be Right If:
- You plan to move within a few years
- You want to leave maximum home equity to heirs
- You can't afford property taxes, insurance, and maintenance
- You have other lower-cost alternatives
- You only have limited equity
- The upfront costs outweigh the benefits
- You're under 62 (all borrowers must be 62+)
Let's Discuss Your Options
Reverse mortgages are complex financial products. They can be powerful retirement planning tools when used appropriately, but they're not right for everyone. I'll provide honest guidance about whether a HECM makes sense for your situation - and if it doesn't, I'll explain why and suggest alternatives.
My job is to help you make an informed decision, not to push you into a loan that doesn't serve your best interests.