What is a Home Equity Conversion Mortgage?

Overview: Home Equity Conversion Mortgage

A Home Equity Conversion Mortgage (HECM) is the most common type of reverse mortgage, and it's insured by the Federal Housing Administration (FHA). It allows homeowners aged 62 or older to convert part of their home equity into tax-free cash without having to sell their home, give up the title, or make monthly mortgage payments.

Here's how it works:

Instead of you paying the lender each month (like a traditional mortgage), the lender pays you.
The money you receive is a loan against your home's equity. Interest accrues over time, and the loan balance grows.
You can receive the money as a lump sum, monthly payments, a line of credit, or a combination.
You retain ownership of your home as long as you:
- Live in the home as your primary residence
- Stay current on property taxes, homeowners insurance, and maintenance
The loan is repaid when the borrower dies, sells the home, or moves out permanently.

Pros:

Access to cash in retirement
No monthly mortgage payments
Flexible payment options

Cons:

Reduces home equity over time
Interest accrues on the loan
Heirs may need to repay the loan or sell the home after the borrower’s death