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)
