The Basics
What Is a HECM?
Reverse Mortgages Explained in Plain English
The basics: What a HECM actually is
A HECM — pronounced "heck-um" — is the most common type of reverse mortgage in the United States. It's insured by the Federal Housing Administration (FHA) and regulated by the Department of Housing and Urban Development (HUD). This isn't some unregulated financial product sold out of a back office. It's a federally backed program with substantial consumer protections built in.
Here's the core idea: You've spent decades building equity in your home. A HECM lets you access that equity as cash while continuing to live in the home. Unlike a traditional mortgage or home equity loan, you don't make monthly payments back to the lender. Instead, the loan balance grows over time (because interest accrues), and it's settled when you no longer live in the home.
Think of it as the reverse of a traditional mortgage — hence the name. With a regular mortgage, you make payments to the bank over time. With a reverse mortgage, the bank pays you.
Who qualifies for a HECM?
The basic requirements are straightforward:
Age
At least one borrower must be 62 or older
Homeownership
You must own the home and live in it as your primary residence
Equity
Significant equity in the home (typically 50% or more)
Property type
Single-family home, 2-4 unit property (if you live in one unit), FHA-approved condo, or qualifying manufactured home
Financial assessment
Ability to maintain property taxes, insurance, and upkeep
Counseling
You must complete a session with a HUD-approved counselor
How you receive the money
One of the most flexible features of a HECM is that you choose how to receive your funds. There's no one-size-fits-all. Your options include:
Lump sum
A single payment at closing. Available with the fixed-rate option. Good if you have a specific need like paying off an existing mortgage or funding home repairs.
Monthly payments
Receive steady monthly payments — either for a set period (term) or for as long as you live in the home (tenure). This works like a personal pension from your home equity.
Line of credit
Access funds as needed, when needed. The unused portion grows over time (at the same rate as the loan balance), giving you increasing borrowing power. Many financial planners consider this the most powerful option.
Combination
Mix and match the above options. For example, a small lump sum to pay off your existing mortgage plus a line of credit for future needs.
The protections built into every HECM
Because HECM loans are FHA-insured, they come with protections that simply don't exist with other financial products:
Non-recourse guarantee
You or your heirs will never owe more than the home is worth. If the loan balance exceeds the home's value, FHA insurance covers the difference.
Mandatory counseling
Before you can close on a HECM, you must speak with a HUD-approved counselor who is independent of the lender. This ensures you understand the loan fully.
You keep ownership
Your name stays on the title. The lender has a lien — just like any mortgage — but the home is yours.
Right of rescission
After closing, you have three business days to cancel the loan for any reason — no questions asked.
What a HECM costs
Let's be transparent about costs, because this is one of the biggest areas of confusion. HECM costs are real, but they're not hidden — and they're comparable to what you'd pay for a traditional refinance:
Origination fee
The greater of $2,500 or 2% of the first $200,000 of your home's value plus 1% of the amount over $200,000. Capped at $6,000.
FHA Mortgage Insurance Premium (MIP)
2% of the appraised value at closing, plus 0.5% annually on the outstanding balance. This is what pays for the non-recourse guarantee.
Third-party closing costs
Appraisal, title search, recording fees, and other standard closing costs. These vary by location.
Interest
Accrues on the outstanding balance. Can be fixed (lump sum only) or adjustable. Current rates are competitive with traditional mortgage rates.
Servicing fee
A small monthly fee (up to $35) charged by some servicers to manage the loan.
Most of these costs can be financed into the loan, meaning you don't pay them out of pocket. That said, financing costs reduces your available proceeds, so it's worth understanding the tradeoff.
When a HECM makes sense — and when it doesn't
A reverse mortgage isn't right for everyone. Here are some situations where it can be a genuinely smart financial move:
It may be a good fit if you:
Want to eliminate monthly mortgage payments
Need to supplement retirement income
Want a financial safety net (line of credit)
Plan to age in place in your current home
Want to delay Social Security for a higher benefit
Need to fund home modifications for aging
It may not be right if you:
Plan to move within 2-3 years
Can't afford property taxes and insurance
Want to leave your home debt-free to heirs
Have a better source of funds available
Are being pressured into it by anyone
The point isn't to sell you on a HECM. It's to help you understand it clearly so you can make the decision that's right for your life.