What Is a HECM? The Plain-English Explanation
HECM is the FHA's name for a reverse mortgage. The acronym is jargon-heavy and most homeowners give up on the term before they understand the product. Here's the plain-English explanation — what it is, how it works, who qualifies, and how it's different from anything else you might compare it to.
The short answer
HECM = Home Equity Conversion Mortgage. It's the FHA's specific reverse mortgage product, available to homeowners 62+. When people say "reverse mortgage" in the United States, about 95%+ of the time they're actually talking about a HECM.
HECMs are FHA-insured (which means the FHA guarantees the loan if the borrower's home value falls below the loan balance) and federally regulated. They're the standard reverse mortgage product in America.
How a HECM actually works
Plain-English mechanics:
- You apply. The lender verifies you're 62+, the home is your primary residence, and you can keep up with property taxes/insurance/HOA.
- You complete HUD counseling. ~60-minute phone session with an independent counselor (~$125, sometimes waived). Required.
- The home is appraised. The FHA cap of $1,209,750 (in 2026) is the maximum value used for principal limit calculations.
- Your principal limit is calculated. Based on age, home value, and current expected interest rate. Typically 40-60% of home value.
- You choose how to receive funds. Lump sum, line of credit, monthly term payments, monthly tenure payments (for life), or any combination.
- The loan closes. You stay on title. The lender records a lien for the loan amount.
- No monthly payments are required. Unpaid interest accrues. Loan balance grows over time.
- You keep paying property charges. Property taxes, insurance, HOA, basic upkeep — same as today.
- The loan ends. When you sell the home, no longer use it as primary residence, or upon the last borrower's passing.
- The loan is repaid. Usually from sale proceeds. Any remaining equity goes to you or your heirs.
Who qualifies for a HECM
Eligibility requirements:
- Age: 62 or older (youngest borrower if there are co-borrowers)
- Property: Your primary residence — single-family home, FHA-approved condo, 2-4 unit property where you occupy one unit, or FHA-compliant manufactured home
- Equity: Generally at least 50% equity in the home, though this varies with age and rates
- Financial assessment: Demonstrated ability to keep up with property taxes, insurance, HOA, and basic maintenance going forward
- HUD counseling: Completed counseling with an independent FHA-approved counselor
Things that don't disqualify you:
- Past bankruptcy or foreclosure (though they're considered)
- Low credit score (HECMs use financial assessment, not strict credit scoring)
- HOA dues (factored in, but rarely disqualifying)
- Mello-Roos special assessments (factored in, not disqualifying)
- Existing mortgage (the HECM pays it off)
HECM vs other things you might compare it to
HECM vs HELOC
A HELOC requires monthly payments and can be frozen or reduced by the lender at any time. A HECM has no required monthly payments and the line of credit cannot be frozen by the lender. HECM closing costs are higher; HELOC closing costs are minimal. Different tools for different situations. For HELOC-specific guidance — qualifying, rates, and a payment calculator — see HELOCpedia.
HECM vs traditional refinance
A traditional refi requires monthly payments and uses your income to qualify. A HECM doesn't require monthly payments and uses your home equity primarily. For retirees on fixed income, the HECM is often the only product that pencils.
HECM vs jumbo (proprietary) reverse mortgage
HECM is FHA-insured, capped at $1,209,750 of home value, and offers more disbursement options (especially the growing line of credit). Jumbo is a private investor product, lends against full home value up to $4M+, and typically offers lump sum or line of credit but not always tenure payments. For homes above $1.21M, jumbo often makes sense. Detailed comparison here.
HECM vs selling the home
Selling is the most direct way to access equity but requires moving. HECM lets you access equity while staying. For California homeowners specifically, HECM also preserves your Prop 13 property tax basis — selling triggers reassessment.
The HECM line of credit feature (this is the underrated part)
One feature deserves its own section because most people miss it.
The HECM line of credit has a unique structural feature: the unused portion grows annually at the note rate plus the FHA mortgage insurance premium. Set up a $400K line at age 62 with no plan to draw, and the available credit grows year after year. By 75 it might be $560K. By 85 it might be $750K — even if your home value hasn't moved.
This isn't a marketing claim. It's how the contract works. The growth happens regardless of what the housing market does.
This feature is unique to HECMs (jumbo programs may have different growth structures or none). It's also the reason financial planners increasingly recommend setting up a HECM LOC early in retirement as a buffer asset, not as a last-resort tool.
What HECM costs in 2026
Closing costs typically run 2-4% of home value:
- Origination fee: Capped at $6,000
- FHA upfront mortgage insurance premium: 2% of home value
- Third-party costs: Title, escrow, appraisal — typically $2,500-$5,000
- HUD counseling: ~$125
Most costs are financed into the loan — you don't write a check at closing.
Ongoing: 0.5% annual FHA mortgage insurance premium on outstanding balance, plus interest accrual at the note rate.
HECM for Purchase
One specific use of a HECM deserves a mention: HECM for Purchase (sometimes called H4P). Instead of placing the HECM on a home you already own, you use it to BUY a new home. You bring a down payment (typically 45-65% of purchase price) and the HECM finances the rest. No required monthly mortgage payment going forward.
Common use case: empty-nesters downsizing from a large family home into a smaller single-level home or condo. Detailed HECM-for-Purchase article here.
Common HECM misconceptions
"The bank takes my home." No. You stay on title. The home is yours.
"I'll owe more than the home is worth." No. HECMs are non-recourse. You and your heirs will never owe more than the home's value.
"My heirs lose the home." No. Heirs can pay off the balance and keep it, sell and keep remaining equity, or walk away with no liability.
"It affects my Social Security." No. HECM proceeds are loan proceeds, not income. Social Security and Medicare aren't affected.
"I'll lose Prop 13 protection." No (California). The HECM doesn't trigger reassessment.
The next step
If the HECM mechanics make sense and you want to know what it would actually look like for your situation — your age, your home value, your goals — the 15-minute call answers all of it. We pull your principal limit, walk through cost projections, and compare disbursement options. Free, no commitment.
Get a personalized HECM estimate
15-minute call. No commitment. Honest answers on what fits your situation.