What a HECM actually is
A Home Equity Conversion Mortgage (HECM) is an FHA-insured reverse mortgage for eligible borrowers age 62 or older. It may help you access part of your home equity or purchase a new primary residence for retirement. Eligible borrowers have no required monthly principal-and-interest payments while meeting loan obligations. Depending on the loan terms, proceeds may be available as a lump sum, monthly advances, a line of credit, or a combination.
You must continue paying property taxes and homeowners insurance, maintaining the home, and meeting occupancy and other loan requirements. Interest and fees accrue and generally add to the loan balance, reducing remaining equity. Repayment is required when a maturity event occurs, such as the last borrower permanently leaving the home or passing away, subject to applicable protections and loan terms. Selling the home or failing to meet loan obligations can also make the loan due.
HECMs are different from proprietary reverse mortgages, which are not FHA-insured. Some proprietary programs may allow younger borrowers, but eligibility, costs, availability and protections depend on the particular program.
The growing line of credit
An unused HECM line of credit may grow under the loan’s terms, increasing the amount available to borrow. This is borrowing capacity—not investment income, interest earned on savings, or an increase in your home’s value. Amounts you draw become part of your loan balance and accrue interest and applicable charges. Consider the loan’s costs and your plans rather than assuming that opening a line early is always beneficial.
What stays your responsibility
You must pay property taxes, homeowners insurance and applicable HOA dues, maintain the home, and meet occupancy and all other loan requirements. The home must remain your primary residence under the applicable rules. Not having required monthly principal-and-interest payments does not remove these responsibilities. Failing to meet them can make the loan due and may lead to foreclosure.
Protection for your heirs
FHA-insured HECMs have non-recourse protections: repayment is generally limited to the home, and other assets generally are not liable for a shortfall, subject to applicable program and repayment rules. When repayment is required, heirs may repay the loan to keep the home or sell it and retain any remaining equity after the loan and applicable costs are paid. Repayment options and deadlines apply. Eligible non-borrowing spouse protections may defer repayment in certain circumstances, but not every spouse qualifies. Proprietary program protections depend on the loan terms.
When it is the wrong tool
A reverse mortgage is not the right fit for everyone. If you expect to move soon, upfront costs may outweigh the benefits. Consider how the loan could affect remaining equity and anyone living with you who is not a borrower. An eligible non-borrowing spouse may qualify for certain HECM protections, but other household members do not automatically have the same protections. A HELOC, downsizing or another option may be a better fit, depending on your circumstances. Independent HUD-approved counseling is required for HECMs and can help you compare the trade-offs.
Questions people ask
Can the bank take my home?+
You retain title to your home, but the reverse mortgage is secured by a lien. You must meet occupancy and all other loan requirements, including paying property taxes and homeowners insurance and maintaining the home. If the loan becomes due and is not resolved under the applicable repayment rules, foreclosure may occur. HECM non-recourse protections do not prevent foreclosure when loan obligations are not met.
Can I use a reverse mortgage to buy a home?+
Yes, if you qualify. HECM for Purchase allows eligible buyers age 62 or older to combine their own funds with reverse-mortgage proceeds to purchase a new primary residence. Buyers generally need a substantial down payment or investment of their own funds, plus applicable closing costs. The amount varies based on age, property value, interest rates and program requirements. Some proprietary purchase programs may allow younger buyers, subject to their own requirements and availability. Eligible borrowers have no required monthly principal-and-interest payments while meeting loan obligations, but must pay property taxes and homeowners insurance, maintain the home, and meet occupancy and other requirements. Interest and fees accrue, the balance generally increases, and repayment is required at a maturity event, subject to applicable protections and loan terms.