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What is a HECM loan, and how does it work?
Quick Answer: A Home Equity Conversion Mortgage (HECM) loan is a reverse mortgage for homeowners age 62+ that is insured by the Federal Housing Administration (FHA). It may allow you to convert part of your home equity into cash, as long as you meet ongoing obligations. The loan is typically repaid when you sell, move out, or pass away.
Key Points
A HECM does not require monthly mortgage payments as long as borrowers live in the home as a primary residence, continue paying property taxes and insurance, and maintain the home.
Borrowers and their properties must meet strict requirements outlined by the U.S. Department of Housing and Urban Development.
The loan becomes due and payable under specific conditions outlined in the loan agreement, typically when the last eligible borrower dies, moves out, sells the home, or fails to meet the loan terms.
Making the most of your retirement means being thoughtful about your finances, including how and when to leverage resources at your disposal, such as your home equity. For homeowners 62+, one option is a HECM, the most common type of reverse mortgage in the United States.
While reverse mortgages have sometimes been misunderstood, the HECM loan option has undergone many changes over the years to strengthen safeguards, improve oversight, and help borrowers make informed decisions. Understanding how this loan option works is key to determining whether it fits into your retirement plans.
In this guide, we’ll go over how a HECM works, who may be eligible, and what to consider before applying.
What is a Home Equity Conversion Mortgage (HECM) loan?
A HECM is an FHA-insured reverse mortgage loan available to homeowners age 62 or older. Like most reverse mortgages, it may allow older homeowners to access the equity in their home without making monthly mortgage payments. Instead, the lender disburses funds to you in whatever payout option you select.
Borrowers must continue to meet loan requirements, including living in the home as a primary residence, paying property taxes and homeowners insurance, and maintaining the property. If these obligations are not met, the loan may become due and payable.
You can receive your funds as:
- A lump sum
- A line of credit
- Monthly payments
- Or a combination of these options
Over time, interest and fees accrue, and the loan balance increases. The loan generally becomes due and payable when the last surviving borrower sells the home, moves out permanently, dies, or fails to meet the loan terms.
Each year, the FHA sets a lending limit for HECMs. For 2026, the HECM FHA mortgage limit is $1,249,125. This figure affects how much of your home’s value the FHA will consider when determining how much you may be able to borrow. HECM loans are insured by the FHA and are only available through FHA-approved lenders.
→ Learn more: What is a reverse mortgage and how does it work?
What are the eligibility requirements for a HECM?
To be eligible for a HECM, borrowers must meet certain FHA requirements. These guidelines are designed to help ensure you can meet loan obligations over time.
Requirements include:
- Age: You must be at least 62 years old.
- Home equity: You must own your home outright or have enough equity to pay off your existing mortgage with the reverse mortgage proceeds at closing.
- Property: The home must meet FHA requirements. Eligible properties include single-family homes, approved condos, certain manufactured homes, and properties with up to four units if one is owner-occupied.
- Occupancy: The home must be your primary residence and remain so for the life of the loan.
- Financial assessment: Lenders must review your credit history, income, and ongoing expenses to determine whether you can continue meeting property-related obligations.
- Federal debt: You must not have any unresolved federal debt, such as unpaid federal taxes or federal student loans in default.
Finally, before applying for a HECM, you must complete a session with a HUD-certified housing counselor. This independent counseling session is a required safeguard to help ensure you understand how the loan works and your obligations.
During counseling, you’ll review:
- How a HECM affects your home equity
- Your ongoing responsibilities as a borrower
- Repayment triggers and when the loan becomes due
- Alternatives to a HECM
The counselor does not work for the lender and cannot recommend a specific loan. Their role is to provide objective information so you can make a more informed decision.
To learn more, please visit the CFPB’s “Reverse Mortgage: A Discussion Guide.”
What fees and costs are associated with a HECM?
Like most mortgage products, a HECM includes both upfront and ongoing costs. Understanding these fees can help you evaluate how the loan fits into your overall financial plan.
Common HECM costs may include:
- FHA mortgage insurance premium (MIP): Borrowers pay both an upfront and an annual premium for HECMs. This insurance protects borrowers and lenders and helps cover any shortfall if the loan balance exceeds the home’s value when it becomes due.1
- Origination fee: This compensates the lender for processing and underwriting the loan. The FHA limits how much lenders may charge.
- Third-party closing costs: These standard real estate expenses may include appraisal fees, title services, recording fees, and other required charges.
- Servicing fees (if applicable): Some loans may include a monthly servicing fee to cover administrative tasks such as sending statements and managing the loan.
- Interest: Interest is charged on the loan balance and added to the amount you owe. Rates vary by lender and can change over time (adjustable rate) or stay the same (fixed rate).
Typically, most HECM costs are financed into the loan rather than paid out of pocket at closing. As a result, they are added to the loan balance and accrue interest over time, increasing the total loan amount owed. This is called negative amortization and is different from how many traditional loans work.
→ Learn more in our guide, Reverse mortgage fees and costs explained.
How do you apply for a HECM?
Applying for a HECM involves completing several required steps to confirm eligibility and comply with FHA guidelines. While the application process is similar to most reverse mortgages, it also includes additional safeguards specific to HECMs.
- Review eligibility requirements: Confirm you meet FHA requirements, including being at least 62, living in the home as your primary residence, and meeting property and financial requirements.
- Complete HUD-approved counseling: Meet with an independent, HUD-certified counselor to review how HECMs work, borrower responsibilities, costs, repayment, and alternatives.
- Choose an FHA-approved lender: Compare your options and select one to guide you through the application, documentation, and underwriting process.
- Complete a financial assessment: Your lender will review your income, ongoing financial obligations, and credit history to determine your ability to meet ongoing property-related expenses. In some cases, a Life Expectancy Set-Aside (LESA) may be required to ensure you can continue to pay property taxes over time.
- Choose how to receive your funds: Depending on the HECM and your eligibility, proceeds may be available as a lump sum, line of credit, monthly payments, or a combination.
- Close on the loan: Sign the final loan documents. After closing and any applicable waiting period, funds are disbursed according to your selected option.
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
What are the pros and cons of a HECM?
HECMs are a financial tool for accessing home equity, but they aren’t right for everyone. Comparing the pros and the cons of this type of loan can help you make the right decision. Here’s what to consider:
Pros
Let’s walk through the specifics, starting with the pros:
- Access home equity for retirement needs: Convert a portion of your home equity into funds that could be used to cover expenses, pay for home renovations, or provide additional financial flexibility.
- No required monthly mortgage payments: Unlike a traditional mortgage, you’re not required to make monthly payments as long as you live in the home as your primary residence, pay property taxes and homeowners insurance, and maintain the home.
- Remain in your home: Continue living in the property as your primary residence while accessing your equity as long as you meet the HECM loan terms.
- Maintain ties to your community: By reducing the need to sell or relocate, a HECM may help you stay close to friends, family, and local support networks.
Cons
Here’s a closer look at some potential drawbacks:
- Ongoing costs and foreclosure risk: Borrowers must continue paying property taxes, homeowners insurance, and maintaining the home. Failure to meet these obligations may cause the loan to become due and payable, which could result in foreclosure.
- Upfront costs and limited proceeds: HECMs include mortgage insurance premiums and lender fees, and you cannot borrow all of your home equity. The amount available depends on age, home value, interest rates, and loan option limits.
- Reputation concerns and fraud risk: Reverse mortgages have faced criticism in the past, and older adults may be targets of financial fraud. Although today’s FHA-insured HECM loan option includes strengthened safeguards, borrowers should work with reputable lenders and trusted advisors.
The right to remain in the home is contingent on paying property taxes and homeowner’s insurance, maintaining the home, and complying with the loan terms.
How does a HECM affect heirs and estate planning?
A HECM can impact heirs because the loan balance becomes due when the last borrower passes away, moves out of the home (such as into a nursing home), or can no longer meet the loan terms. While heirs are not personally responsible for the debt, the remaining home equity may be reduced.
Here’s what heirs and families should understand:
- Heirs are not personally liable beyond the home’s value: HECMs are non-recourse loans, meaning repayment is limited to the home’s value. Neither heirs nor the estate are required to use other assets to cover any shortfall.1
- FHA insurance provides additional protection: If the home’s value is less than the outstanding loan balance, FHA insurance covers the difference, so heirs are not responsible for the remaining amount.1
- Planning ahead matters: Because interest accrues over time and equity may decrease, discussing a HECM with family members and estate-planning professionals can help ensure it aligns with long-term financial and inheritance goals.
→ Read more in our guide: Are heirs responsible for reverse mortgage debt?
What happens at the end of a HECM?
A HECM typically becomes due and payable when the last surviving borrower dies, sells the home, permanently moves out, or fails to meet loan obligations such as paying property taxes or maintaining homeowners insurance.
When the loan becomes due, it must be repaid. Heirs or the estate generally may:
- Sell the home: Use the sale proceeds to repay the loan balance. Any remaining equity belongs to the estate.
- Keep the home: Repay the lesser of the outstanding loan balance or 95% of the home’s current appraised value.
- Refinance or pay off the loan: Use other funds or obtain a new mortgage to satisfy the balance.
→ Learn more about what happens when the last reverse mortgage borrower dies.
How is a HECM different from other home equity options?
A HECM is one way eligible homeowners could access home equity. Depending on your financial goals, age, and housing plans, these other options may be worth considering:
- Proprietary reverse mortgage: A type of reverse mortgage that is not insured by the FHA. These loans may offer higher borrowing limits for higher-value homes. Eligibility requirements, costs, and borrower protections vary by lender.
- Home equity line of credit (HELOC): A revolving line of credit secured by your home that allows you to borrow funds during a set draw period. HELOCs typically require monthly payments and lender approval based on income and credit.
- Home equity loan: A lump-sum loan secured by your home that is repaid in fixed monthly payments over a set term. Eligibility is generally based on income, credit, and available home equity.
Here’s a closer look at how these HECM alternatives compare, side by side:
| Feature | HECM | Proprietary reverse mortgage | HELOC | Home equity loan* |
| Minimum age | 62 | 55, but varies by lender and state | 18 | 18 |
| Monthly mortgage payments required?* | No** | No** | Yes, after the draw period | Yes |
| Payment structure | Loan balance increases over time; repaid when maturity event occurs | Loan balance increases over time; repaid when maturity event occurs | Revolving credit line with required monthly payments after the draw period | Fixed monthly principal and interest payments |
| Credit and income requirements | Financial assessment required | Financial assessment required | Income and credit review required | Income and credit review required |
| Borrowing limits | May not exceed maximum set by the FHA | May exceed FHA lending limits; varies by lender and property value | Based on home equity, income, and lender criteria | Based on home equity, income, and lender criteria |
| FHA-insured | Yes | No | No | No |
| Repayment trigger | When borrower sells, moves out permanently, passes away, or no longer meets loan terms | When borrower sells, moves out permanently, passes away, or no longer meets loan terms | Repaid through required monthly payments | Repaid through fixed monthly payments |
*Finance of America does not offer home equity loans.
**The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
Who is best suited for a HECM?
A HECM is best suited for homeowners age 62+ who have significant home equity and plan to stay in their homes long term. It may be a good fit for those seeking additional financial flexibility in retirement without making monthly principal and interest payments.
However, borrowers must continue paying property taxes, maintaining homeowners insurance, and keeping the home in good condition. Over time, the loan balance grows. Older homeowners who expect to move soon or who want to preserve their home equity for heirs may want to consider other options.
To estimate how much equity you may be able to access and see whether a HECM fits your needs, try our reverse mortgage calculator or speak with a HUD-certified counselor or FHA-approved lender about your options.
FAQs
What is the difference between a reverse mortgage and a HECM?
A reverse mortgage is a broad term for loans that allow older homeowners to access their home equity without required monthly mortgage payments. A HECM is the most common type of reverse mortgage and is insured by the FHA. Other reverse mortgage products, such as proprietary reverse mortgages, are offered by private lenders and may have different terms, lending limits, and consumer protections.
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
Can you refinance a HECM?
Yes. In some cases, borrowers may refinance into a new HECM, proprietary reverse mortgage, or a traditional mortgage, depending on home value, rates, and financial goals.
→ Read more: Can you refinance a reverse mortgage?
How much money can you get from a HECM?
The amount you may be able to receive depends on factors such as your age, home value, current interest rates, and the FHA lending limit. Rather than borrowing the full value of the home, borrowers become eligible for a percentage based on these factors.
→ Read more: How much can I get from a reverse mortgage?
What’s the difference between a HECM and a HECM for purchase?
A standard HECM allows eligible homeowners age 62 or older to access equity in a home they already own. A HECM for purchase uses a HECM along with a down payment to buy a new primary residence. With either option, you don’t have to make monthly mortgage payments as long as you meet the loan terms, including living in the home as a primary residence, paying taxes and insurance costs, and maintaining the home.
→ Read more: What is a HECM for purchase?
Does a HECM line of credit grow over time?
Yes. The unused portion of a HECM line of credit grows over time, increasing the amount available for you to borrow in the future. This growth is based on the loan’s interest rate and mortgage insurance premium and isn’t tied to changes in your home’s value.
→ Read more: What is a reverse mortgage line of credit, and how does it work?
Can I get a HECM if my condo isn’t FHA-approved?
Possibly. An entire condominium project doesn’t necessarily have to be FHA-approved for you to be eligible for a HECM. FHA allows eligible individual condo units in some non-approved projects to receive single-unit approval if they meet specific requirements. Your lender can determine whether your condo qualifies.
→ Read more: Reverse mortgage on a condo: What you need to know
1Non-recourse means that you, or your estate, can’t owe more than the value of your home when the loan becomes due and the home is sold. Non-recourse means that if you default on the loan, or if the loan cannot otherwise be repaid, the lender cannot look to your other assets (or your estate’s assets) to meet the outstanding balance on your loan.
About the author
is a Senior Web Content Writer at Finance of America and a journalist with more than 20 years of experience specializing in business, and technology. Her work has been published in The Wall Street Journal, The Financial Times, and numerous other leading outlets.
Disclaimer
This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For tax advice, please consult a tax professional. For more information about whether a reverse mortgage fits into your retirement strategy, you should consult your financial advisor.
