# Home Equity Conversion Mortgage (HECM): Definition, Eligibility

## What Is a Home Equity Conversion Mortgage (HECM)?

A home equity conversion mortgage (HECM) is a type of reverse mortgage that allows seniors 62 and older to convert the equity in their homes into cash for expenses, retirement income, or home repairs.

The amount you can borrow with a home equity conversion mortgage (HECM) is based on the [appraised value](https://www.investopedia.com/terms/a/appraised_value.asp) of the home and is insured by the [Federal Housing Administration (FHA)](https://www.investopedia.com/terms/f/federal-housing-administration.asp). Unlike a traditional [mortgage](https://www.investopedia.com/terms/f/first_mortgage.asp) loan, the money borrowed from a reverse mortgage, like an HECM, does not need to be repaid monthly.

Instead, the borrower must repay the entire loan when the home is sold or either the borrower(s) passes away or moves out of the property. In return, the borrower must pay the reverse mortgage [lender](https://www.investopedia.com/the-best-mortgage-lenders-11714101) fees and interest that has accrued on the outstanding loan balance.

However, the homeowner must continue to maintain the home and pay their [property taxes](https://www.investopedia.com/know-the-difference-between-real-estate-taxes-and-personal-property-tax-5191990) and [homeowners' insurance](https://www.investopedia.com/homeowners-insurance-vs-mortgage-insurance-5221665). Discover how a home equity conversion mortgage (HECM) works and how to qualify.

### Key Takeaways

*   A home equity conversion mortgage (HECM) is a type of reverse mortgage that allows homeowners 62 and older to convert their home equity into income.
*   An HECM allows borrowers to use the money for any purpose, including for expenses, retirement income, or home repairs.
*   Unlike a traditional mortgage, you don't repay an HECM loan in monthly payments; instead, you repay the funds when you sell the home, move out, or pass away.
*   HECMs make up the majority of the reverse mortgage market and are insured by the Federal Housing Administration (FHA).  
    
*   Borrowers of HECM loans must pay interest, fees, and mortgage insurance premiums.

## How a Home Equity Conversion Mortgage Works

Home equity conversion mortgages are a popular type of [reverse mortgage](https://www.investopedia.com/mortgage/reverse-mortgage/) and make up the bulk of the reverse mortgage market.

A HECM shares similarities to a [home equity](https://www.investopedia.com/terms/h/home_equity.asp) loan since borrowers have the option of receiving a cash advance based on the [equity value of their home](https://www.investopedia.com/the-best-heloc-loans-11695646), which acts as collateral. With a [home equity loan](https://www.investopedia.com/mortgage/heloc/home-equity-vs-heloc/), the homeowner must repay the funds in monthly payments shortly after the funds are disbursed.  

Conversely, HECM loans do not require borrowers to make monthly payments but instead must repay the loan when the borrower sells their home or passes away. In return, the lender charges closing costs, interest, and fees for servicing the loan.

### How HECM Funds Are Disbursed

An HECM allows borrowers to receive the money in a few ways, allowing for customization. However, how you receive the funds determines whether you're charged a fixed or adjustable interest rate on the balance. Adjustable-rate loans fluctuate with market interest rates, usually based on an index, and can increase or decrease over time.

**Lump sum**

*   Receive the entire amount of approved equity in your home as a cash payment upfront
*   Charges a fixed interest rate
*   May cost more since you pay interest on all of the funds immediately

**Credit line**

*   The line of credit allows the borrower to tap into as needed.
*   Charged an adjustable interest rate
*   Lower cost than a lump sum since you're only charged interest on borrowed funds
*   Can be combined with monthly income payouts

**Monthly payouts**

*   You receive a preset monthly income payment
*   Charged an adjustable interest rate
*   Can be combined with a credit line
*   Lower cost than a lump sum since you're only charged interest on the withdrawn amounts

An HECM provides flexibility since it can be used for monthly retirement income, home improvements, or as a backup credit line for emergencies.

### $1,209,750

The maximum HECM loan limit in 2025, up from $1,149,825 in 2024.

### Mortgage Insurance Premiums

Borrowers must also pay [mortgage insurance premiums](https://www.investopedia.com/terms/m/mortgage-insurance.asp) for an HECM. Although these premiums and fees can be rolled into the loan, this results in a lower amount of equity that a borrower can tap into, referred to as the [net principal limit](https://www.investopedia.com/terms/r/reverse-mortgage-net-principal-limit.asp).

## Proprietary Reverse Mortgages

Reverse mortgage loans—not backed by the FHA and are privately sponsored—may have different terms than HECMs. These [proprietary reverse mortgage](https://www.investopedia.com/terms/p/proprietary-reverse-mortgage.asp) loans may allow for [higher borrowing amounts with lower costs](https://www.investopedia.com/proprietary-mortgages-vs-home-equity-conversion-mortgages-5224019) than HECMs. However, HECMs typically offer lower interest rates for borrowers.

Whether an HECM or a privately sponsored reverse mortgage is right for you will depend on various factors, including your age and how long you plan on living in the home. Homeowners have the choice of different types of reverse mortgages, some of which allow you to remain in the home with no requirements for repayment until you sell the home or pass away.

## Who Is Eligible for a Home Equity Conversion Mortgage (HECM)?

The Federal Housing Administration sponsors and insures the home equity conversion mortgage. The FHA also sets the guidelines and eligibility for these [loans](https://www.investopedia.com/the-best-mortgage-lenders-for-bad-credit-11697459). Borrowers can only obtain HECMs from [banks](https://www.investopedia.com/the-best-online-banks-11722209) or [credit unions](https://www.investopedia.com/the-best-credit-unions-8783335) that are FHA-approved lenders. To obtain a home equity conversion mortgage, a borrower must complete a standard application.

To qualify for an HECM, borrowers must meet all of the requirements set by the FHA, including:

*   Be at least 62 years old
*   Own the property or have paid down a considerable amount
*   Use the property as their principal residence
*   Not be delinquent on any federal debt
*   Have the financial capability to continue to make timely payments of ongoing property charges such as property taxes, insurance, homeowner association fees, etc.
*   Participate in a consumer information session provided by a Housing and Urban Development-approved HECM counselor

In addition, the property must be one of the following:

*   A single-family home or two- to four-unit home with one unit occupied by the borrower
*   A HUD- or FHA-approved condominium
*   A manufactured home that meets FHA requirements

> **Warning**
>
> Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).

## What Is the Difference Between a HECM and a Reverse Mortgage?

All HECMs are reverse mortgages, but not all reverse mortgages are HECMs. HECMs are [reverse mortgages backed by the FHA](https://www.investopedia.com/fha-reverse-mortgage-loans-5222032) and issued by an FHA-approved lender.

## Can You Lose Your Home with a HECM?

Yes, there are a few scenarios in which you could lose your home with an HECM. You could lose your home if you can't afford to pay the balance on your reverse mortgage. The entire balance becomes due under the following circumstances:

*   If you fail to maintain the property or pay the property taxes and insurance.
*   If the property stops being your primary residence for more than 12 consecutive months, the balance becomes due.
*   If you leave your home involuntarily because of a lengthy stay in a hospital, nursing home, or assisted living facility.

## Are HECMs Expensive?

Yes, HECMs carry very high origination, mortgage insurance premiums, and maintenance fees.

## What Are Good Alternatives to an HECM?

There are [alternatives to an HECM](https://www.investopedia.com/mortgage/reverse-mortgage/5-top-alternatives-to-reverse-mortgage/), depending on your needs. A cheaper option than an HECM is a single-purpose reverse mortgage through a local nonprofit, If you can qualify.

If you don't need the extra income from a HECM, you can downsize your home, allowing you to [pass on your home to your heirs](https://www.investopedia.com/inheriting-house-home-equity-loan-5295983) or leave it to a charity when you pass.

## The Bottom Line

A home equity conversion mortgage (HECM) is the most common type of [reverse mortgage](https://www.investopedia.com/reverse-mortgage-pros-and-cons-5209641). An HECM allows borrowers 62 and older to tap into their home equity without needing to repay the funds until they pass away or move out of the home.

An HECM allows borrowers to receive the funds as a lump sum upfront, monthly income installments, or a credit line that they can tap into as needed. However, there are fees, closing costs, and interest charged on the borrowed funds that reduce your home's equity. Please consult a mortgage professional to discuss the right product for your financial situation.

> **Article Sources**
>
> 1.  Federal Trade Commission Consumer Advice. "[Reverse Mortgages](https://consumer.ftc.gov/articles/reverse-mortgages#types)."
>     
> 2.  U.S. Department of Housing and Urban Development. "[Home Equity Conversion Mortgages for Seniors](https://www.hud.gov/program_offices/housing/sfh/hecm/hecmhome)."
>     
> 3.  Federal Trade Commission. "[Home Equity Loans and Home Equity Lines of Credit](https://consumer.ftc.gov/articles/home-equity-loans-and-home-equity-lines-credit)."
>     
> 4.  Consumer Financial Protection Bureau. "[Reverse Mortgages A Discussion Guid](https://files.consumerfinance.gov/f/documents/cfpb_reverse-mortgage-discussion-guide.pdf)e." Page 14.
>     
> 5.  The Department of Housing and Urban Development. "[Mortgagee Letter 2024-22](https://www.hud.gov/sites/dfiles/OCHCO/documents/2024-22hsgml.pdf)." Page 2.
>     
> 6.  The Department of Housing and Urban Development. "[FHA 2024 Nationwide Single Family Forward and HECM Mortgage Limits](https://www.hud.gov/sites/dfiles/SFH/documents/SFH_FHA_INFO_2023-96.pdf)." Page 1.
>     
> 7.  Consumer Financial Protection Bureau. "[Reverse Mortgages A Discussion Guide](https://files.consumerfinance.gov/f/documents/cfpb_reverse-mortgage-discussion-guide.pdf)." Pages 10-11.
>     
> 8.  Federal Trade Commission Consumer Advice. "[Shopping for a Mortgage FAQs](https://consumer.ftc.gov/articles/shopping-mortgage-faqs)."
>     
> 9.  Consumer Financial Protection Bureau. "[Reverse Mortgages: A Discussion Guide](https://files.consumerfinance.gov/f/documents/cfpb_reverse-mortgage-discussion-guide.pdf)." Pages 16-18.