An adjustable-rate HECM can change among line of credit, tenure, term, and combinations after closing, as 24 CFR 206.26 allows. The request goes to the servicer. A closed-end fixed HECM cannot change payment options. Jay Zayer, a CRMP licensed in California and Arizona, picks the rate type at origination with that lock in mind, because a later “just switch it” is not a servicing favor on a fixed note.
24 CFR 206.19 lists the payment options. 24 CFR 206.26 is the change rule. They are not the same section.
What does 24 CFR 206.26 actually allow on an ARM, step by step?
- During the first 12-month disbursement period, a change cannot push total disbursements past the Initial Disbursement Limit (24 CFR 206.26(b)(1)(i) and 24 CFR 206.25).
- After that period, if the outstanding balance is less than the principal limit, you may request a recalculation, a change to another available option, or a disbursement of leftover capacity after set-asides (24 CFR 206.26(b)(1)(ii)).
- The loan keeps the adjustable rate you already agreed to. The servicer recalculates future monthly payments under 24 CFR 206.25.
- The mortgagee may charge a fee not exceeding the Commissioner’s cap (24 CFR 206.26(b)(1)(iii)).
- HUD may limit frequency or require notice by separate notice (24 CFR 206.26(b)(1)(iv)). Ask the servicer what overlay they use.
Here is what this looks like in practice: a 67-year-old in San Bernardino took tenure to cover a budget gap, then a pension survivor benefit started. The household asks the servicer to move leftover capacity into a line so unused funds can grow at note rate plus 0.50% annual MIP. That is an ARM 206.26 request. It is not a new principal-limit factor. Mortgagee Letter 2017-12 tables do not rerun.
Call the servicer, not the originator, to start it. See contact the servicer. See line versus monthly for which plan fits which job.
What cannot be modified, even if the kitchen table wants it?
A fixed HECM cannot become an unused growing line (24 CFR 206.26(b)(2)). A LESA cannot be added or resized as a “plan change.” Occupancy cannot be waived. First-year caps cannot be ignored in month two. A proprietary loan follows its note, not 24 CFR 206.26, unless that contract copies HUD.
Refinancing into a different rate type is 24 CFR 206.53, with anti-churning disclosure, not a modification. See whether a HECM can be refinanced.
California Civil Code section 1923.2 does not apply to a servicing plan change. It applied at origination. Arizona files are the same federally.
Unused line math is an origination illustration. After closing, leftover capacity is the servicer’s principal-limit minus balance minus set-asides. Request that figure in writing before you plan a tenure amount.
Who should not originate a plan they already intend to abandon?
A household that wants tenure “for the brochure” and a line “for later” on a fixed HECM. A household in year-one that wants to empty the cap through a fake plan change. Jay will originate the ARM if changes are foreseeable, or the fixed lump if they are not. He will not promise a 206.26 result the servicer has not accepted.
What can go wrong: a verbal tenure stop with no written 206.26 confirmation, and checks keep posting. Another failure: the change is requested while a repair set-aside is open, and leftover capacity is smaller than the family remembered.
Write the request. Name the new plan. Ask for the new tenure or term amount in dollars before you approve it, without treating that figure as a rate quote this page can publish. Ask how unused line capacity will be stated on the next statement. Keep the confirmation.
Who this does not help: a household that originated a fixed HECM to “lock a rate” and now wants ARM features. 24 CFR 206.26(b)(2) is the closed door. Refinance under 24 CFR 206.53 is the remaining door, with costs. Jay will not pretend a servicing ticket can reopen it.
A follow-up: if HUD later assigns the loan, does the new servicer have to honor a plan-change request the old one approved in writing? Assignment can move the file. Bring the confirmation letter. 24 CFR 206.26 still applies to an adjustable HECM that remains FHA-insured. Ask the new servicer to acknowledge the current plan in writing on their letterhead.
If a repair set-aside or a LESA is outstanding, leftover capacity is smaller than the original principal limit. A tenure recalculation that ignores those holds will be rejected. Ask the servicer to show set-asides on the same page as the new plan. 24 CFR 206.26(b)(1)(ii) subtracts them on purpose.
If you change to tenure and then miss property charges, 24 CFR 206.205 still lets the servicer pay from your funds or demand a cure. A new paycheck does not immunize default. Keep the tax bill on autopay or inside the LESA that already exists.