
Home Equity Conversion Mortgage (HECM)
A home equity conversion mortgage (HECM) is a type of reverse mortgage that is insured by the Federal Housing Administration (FHA) A home equity loan is not dissimilar to a reverse mortgage, since borrowers are issued a cash advance based on the equity value of their home, which acts as collateral. 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). In addition, the property must be one of the following: Single-family home or two- to four-unit home with one unit occupied by the borrower HUD-approved condominium project Manufactured home that meets FHA requirements A home equity conversion mortgage (HECM) is a type of reverse mortgage that is insured by the Federal Housing Administration (FHA) A home equity conversion mortgage (HECM) is a type of reverse mortgage that is Federal Housing Administration (FHA) insured.

What Is a Home Equity Conversion Mortgage (HECM)?
A home equity conversion mortgage (HECM) is a type of reverse mortgage that is insured by the Federal Housing Administration (FHA) Home equity conversion mortgages allow seniors to convert the equity in their home into cash.
The amount that may be borrowed is based on the appraised value of the home (and is subject to FHA limits). Borrowers must also be at least 62 years old. Money is advanced against the value of the equity in the home. Interest accrues on the outstanding loan balance, but no payments must be made until the home is sold or the borrower(s) die, at which point the loan must be repaid entirely.



How a Home Equity Conversion Mortgage Works
Home equity conversion mortgages are a popular type of reverse mortgage; in fact, they make up the bulk of the reverse mortgage market. Generally, reverse mortgage terms can vary with privately sponsored reverse mortgage products — officially known as proprietary reverse mortgages — potentially allowing for higher borrowing amounts with lower costs than HECMs.
HECMs, however, will typically offer lower interest rates for borrowers. The economics of a HECM — versus a privately sponsored reverse mortgage — will depend on the borrower’s age and how long the borrower expects to live or own the home. Many types of reverse mortgages will exclusively target seniors with no requirements for repayment until the borrower sells their home or dies.
A HECM can also be considered in comparison to a home equity loan. A home equity loan is not dissimilar to a reverse mortgage, since borrowers are issued a cash advance based on the equity value of their home, which acts as collateral. However, with a home equity loan, the funds have to be paid back, usually in steady monthly interest payments shortly after the funds are disbursed.
$765,600
The maximum HECM loan limit in 2020, up from $726,525 in 2019
While HECM loans do not require borrowers to make monthly payments, certain fees are associated with the closing and servicing of the loan. Borrowers also have to pay mortgage insurance premiums.
Who Is Eligible for a Home Equity Conversion Mortgage — HECM?
The Federal Housing Administration sponsors the home equity conversion mortgage and provides insurance on the products. The FHA also sets the guidelines and eligibility for these loans. Borrowers can only obtain HECMs from banks where the FHA sponsors the product. To obtain a home equity conversion mortgage a borrower must complete a standard application.
To obtain approval a borrower must meet all of the requirements set by the FHA. They must:
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).
In addition, the property must be one of the following:
Related terms:
Appraised Value
An appraised value is a professional assessment of the condition and worth of a piece of property at a specific point in time. read more
Federal Housing Administration (FHA)
The Federal Housing Administration (FHA) is a U.S. government agency that provides mortgage insurance to qualified, FHA-approved lenders. read more
Federal Housing Administration (FHA) Loan
A Federal Housing Administration (FHA) loan is a mortgage insured by the FHA that is designed for home borrowers. read more
Foreclosure
Foreclosure is the legal process by which a lender seizes and sells a home or property after a borrower is unable to fulfill their repayment obligation. read more
Government National Mortgage Association (Ginnie Mae)
Ginnie Mae is a federal government corporation that guarantees securities that underwrite mortgages, helping lenders serve more homeowners read more
Home Equity
Home equity is the calculation of a home's current market value minus any liens attached to that home. read more
Mutual Mortgage Insurance Fund
The Mutual Mortgage Insurance Fund is a fund that insures mortgages made by the Federal Housing Administration (FHA) on single-family homes. read more
National Housing Act
The National Housing Act, passed in 1934 to strengthen the residential real estate market, created the Federal Housing Administration (FHA). read more
Proprietary Reverse Mortgage
A proprietary reverse mortgage is a loan that allows seniors to draw on their homes' equity. It is not federally insured like most reverse mortgages. read more
Reverse Mortgage Net Principal Limit
Reverse mortgage net principal limit is the maximum amount of money a borrower using a reverse mortgage can receive, net of costs and fees. read more