HECM: Home Equity Conversion Mortgage
What is a HECM loan (Home Equity Conversion Mortgage)?
A Home Equity Conversion Mortgage, or HECM, is a home loan that allows homeowners 62 years and older to access a portion of the equity in their primary residence. The funds can be used for any purpose.
What are the benefits of a HECM?
- You stay in your home. 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.)
- No monthly mortgage payment required, but you can choose to pay if you wish.
- Adjustable or fixed-rate loan
- If you choose an adjustable-rate loan, you can receive funds as a line of credit with a growth factor, lump sum payment, monthly payment, or a combination. The fixed-rate loan payout is a lump sum only.
- 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. Both products allow borrowers to tap a portion of the equity built up in their home, but there are significant differences.
- A HECM is an FHA-insured loan with a minimum eligibility age of 62. It follows FHA guidelines, including a limit on the maximum claim amount.
- A reverse mortgage is a proprietary product available to borrowers age 55 and older (minimum age 60 or 62 in some states) with loan amounts up to $4 million, and is generally used for higher-value homes.
The age of the youngest borrower, the expected mortgage interest rate, and the home value/maximum claim amount are the three main factors that determine which product is right for a borrower.
Eligible borrowers and requirements
To be eligible for a HECM you 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)
- Live in the home as your primary residence
- Have a mortgage balance low enough to be paid off with the HECM proceeds
Eligible properties
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 HECM, 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. The mortgage becomes due when the last borrower passes away, sells the home, or moves out. The home can be left to heirs, who will need to pay the loan by selling the home, refinancing the loan, or signing the deed over to the lender.
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You must pay property taxes, homeowners insurance, and HOA dues (if applicable). You must also keep the home in good condition.
