What Is a HECM Reverse Mortgage?

If you're researching reverse mortgages, you'll encounter the acronym HECM frequently. Understanding what a HECM is - and how it differs from other reverse mortgage types - is essential before making any decisions about your home equity.

What Does HECM Stand For?

HECM stands for Home Equity Conversion Mortgage. It is the only reverse mortgage program insured by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD).

Because it is federally insured, the HECM program comes with specific consumer protections, standardized terms, and mandatory safeguards that private reverse mortgage products are not required to include.

How Does a HECM Work?

A HECM allows homeowners age 62 or older to convert a portion of their home equity into loan proceeds - without selling the home or making monthly mortgage payments. The loan balance grows over time as interest accrues and is repaid when the borrower sells, moves out permanently, or passes away.

Key features of the HECM program include:

� FHA mortgage insurance that protects both borrowers and lenders

� Non-recourse protection - you never owe more than the home's value

� Mandatory HUD-approved counseling before closing

� Multiple payout options: lump sum, monthly payments, line of credit, or combination

� A 2026 lending limit of $1,249,125

HECM vs. Proprietary Reverse Mortgage

The HECM is the most common type of reverse mortgage, but it is not the only option - especially for California homeowners. Proprietary reverse mortgages are private programs that offer several advantages for certain borrowers:

� Available to California homeowners as young as age 55 (versus 62 for HECM)

� No federal lending limit - can access equity on homes valued at $2M, $3M, or more

� Often better suited for high-value California properties

� May have different fee structures

For California homeowners with homes valued above $1,249,125, or those between ages 55 and 61, a proprietary product is often the more appropriate choice.

HECM Payout Options

One of the strengths of the HECM program is its flexibility in how you receive funds:

Lump Sum

Receive all available funds at closing. Only available with a fixed interest rate. Subject to the 60% first-year draw limit.

Monthly Payments (Tenure)

Receive equal monthly payments for as long as you live in the home. This option provides predictable income and cannot be cancelled by the lender.

Monthly Payments (Term)

Receive equal monthly payments for a set number of months that you choose.

Line of Credit

Draw funds as needed up to your available limit. The unique and powerful feature of the HECM line of credit is that the unused portion grows over time - meaning the longer you wait to draw, the more becomes available. This is unavailable with any other financial product.

Combination

Any combination of the above options.

HECM Consumer Protections

The HECM program includes several mandatory protections that distinguish it from private alternatives:

� HUD counseling: required before application, conducted by an independent third party

� Non-recourse protection: FHA insurance covers any shortfall if the loan balance exceeds the home's value

� Three-day right of rescission: you can cancel within 3 business days of closing for no penalty

� No prepayment penalty: you can pay down the balance at any time

HECM Costs

HECM loans include specific fees set by FHA guidelines:

� Upfront FHA mortgage insurance premium: 2% of the appraised value (or lending limit, whichever is less)

� Annual mortgage insurance premium: 0.5% of the outstanding loan balance

� Origination fee: up to $6,000 depending on home value

� Standard closing costs: appraisal, title, escrow, recording fees

All HECM costs can be rolled into the loan so there is no out-of-pocket cost at closing.

Frequently Asked Questions

Is a HECM the same as a reverse mortgage?

A HECM is a type of reverse mortgage - specifically, the FHA-insured version. All HECMs are reverse mortgages, but not all reverse mortgages are HECMs. Proprietary reverse mortgages are not HECM loans.

How do I know if I should get a HECM or a proprietary reverse mortgage?

If you are 62 or older and your home is valued at or below $1,249,125, a HECM is often a strong choice due to its consumer protections and competitive terms. If you are between 55 and 61, or if your home is valued above the HECM limit, a proprietary product is likely more appropriate. Jay Zayer can walk you through both options on a free strategy call.

This material is not from HUD or FHA and has not been approved by HUD or any government agency. All reverse mortgage loans are subject to credit and property approval. Terms and conditions may apply. This content is for educational purposes only and is not financial, tax, or legal advice.