Understanding the HECM Program

Scott Sullivan |
Categories
Retirement
Retirement Planning

For many Americans 62 and older, the home is their largest asset. The Home Equity Conversion Mortgage (HECM)—the federally insured reverse mortgage backed by the FHA—offers a way to tap that equity without selling or making monthly mortgage payments.

What Is a HECM?

A HECM lets eligible homeowners convert part of their home equity into cash. No monthly payments are required; instead, the loan balance grows with interest and insurance premiums. The loan is repaid when the last borrower leaves the home—by selling, moving, or passing away.

Importantly, you remain the homeowner and must continue paying property taxes, homeowners insurance, and keeping the home in good repair.

Basic Eligibility

  • Age: All borrowers must be 62 or older.

  • Equity: You need substantial home equity, often meaning the home is paid off or nearly so.
     
  • Residence: Must be your primary home and meet FHA property standards.
     
  • Counseling: FHA-approved counseling is required before applying.
     

  • Financial Capacity: You must show the ability to cover taxes, insurance, and maintenance.

How You Can Receive Funds

HECM funds can be accessed in several ways:

  • Term: Fixed monthly payments for a set time.

  • Tenure: Fixed monthly payments for life in the home.

  • Line of Credit: A flexible, growing credit line you can draw on as needed.

  • Modified Plans: Combine payments and credit line.

  • Lump Sum: One-time payment at closing.
     

Key Benefits

  • No Monthly Payments: Frees up income for other needs.

  • You Keep Your Home: You remain the owner and benefit from any appreciation.
     
  • Tax-Free Proceeds: Considered loan advances, not income.
     
  • FHA Protection: Guarantees you’ll receive expected funds and never owe more than the home’s value.
     

  • Financial Flexibility: The line of credit option supports retirement planning, risk management, and liquidity.
     

Key Risks of HECM Reverse Mortgages

While HECMs offer flexibility, they come with significant trade-offs:

  1. Loss of Home Equity – Interest and fees compound over time, reducing equity and inheritance potential. (consumer.ftc.gov)
     
  2. High Costs – HECMs include closing costs, insurance, and servicing fees that can total thousands of dollars. (money.usnews.com)
     
  3. Repayment Triggers – The loan comes due when you sell, move, or die; heirs may receive little remaining equity. (investopedia.com)
     
  4. Foreclosure Risk – Failure to pay property taxes, insurance, or maintain the home can result in foreclosure. (lendingtree.com)
     
  5. Impact on Heirs – Heirs must decide whether to repay the balance or sell, often under time pressure. (fairwayreverse.com)
     
  6. Limited Flexibility – Moving or downsizing requires full repayment, which may restrict your choices. (consumer.ftc.gov)
     
  7. Potential Loss of Benefits – Proceeds may affect eligibility for needs-based programs like Medicaid. (investopedia.com)
     

Clearing Up Common Myths

  • “The bank takes my home.” False. You keep ownership.

  • “I can be forced out.” False. Stay current on taxes, insurance, and upkeep.

  • “My heirs will owe debt.” False. It’s a non-recourse loan—you’ll never owe more than the home’s value.
     

Is a HECM Right for You?

A HECM can provide income stability and flexibility for the right homeowner, but it’s not for everyone.


Understanding both the advantages and the risks—and discussing them with an FHA counselor and financial advisor—is essential before deciding.

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