By Jessica Martinez · Contributing Writer, Business & FinanceBy Jessica Martinez · Contributing Writer, Business & FinanceWhen people say "reverse mortgage," they almost always mean a HECM. It stands for Home Equity Conversion Mortgage, it is insured by the Federal Housing Administration, and it is the only reverse mortgage backed by the federal government. Understanding the HECM is most of understanding reverse mortgages.
A HECM lets a homeowner aged 62 or older convert part of their home equity into cash, while keeping the title and living in the home. You make no monthly mortgage payments. Instead, the balance grows over time, and the loan comes due when the last borrower sells, moves out for more than a year, or passes away. Because the FHA insures it, a HECM carries consumer protections that private reverse mortgages may not.
A HECM is flexible in how it pays out. You can take a lump sum, a line of credit you draw on as needed, fixed monthly payments for a set term or for as long as you live in the home, or a combination. The line of credit option is popular because the unused portion can grow over time. Estimate your own numbers in the reverse mortgage calculator.
HECMs are not cheap to set up. Expect an FHA mortgage insurance premium, an origination fee, and the usual closing costs, several of which can be financed into the loan rather than paid in cash. The mortgage insurance is what funds the program's key protection, described next. The trade is real: you pay meaningful upfront cost in exchange for payments you never have to make while you live there.
A HECM is a non-recourse loan. That means neither you nor your heirs ever owe more than the home is worth when the loan is repaid, even if the balance has grown past the home's value. If the house sells for less than the balance, FHA insurance covers the difference. Your heirs can also choose to keep the home by repaying the loan balance or 95% of the appraised value, whichever is less.
It can fit a homeowner who is house-rich but cash-tight, wants to stay put, and needs income or a financial cushion in retirement. It fits poorly if you plan to move within a few years, since the upfront costs are steep to absorb over a short stay, or if heirs keeping the house is a top priority. The Consumer Financial Protection Bureau's reverse mortgage guide and HUD's HECM program pages are good neutral starting points. Weigh it against the alternatives in our reverse mortgage vs HELOC comparison.
A Home Equity Conversion Mortgage is the FHA-insured reverse mortgage, the most common type by far. It lets a homeowner 62 or older turn home equity into cash with no monthly mortgage payments, while keeping the title and living in the home. The loan is repaid when the last borrower sells, moves out, or passes away.
Most reverse mortgages are HECMs, so the terms overlap. The distinction is that a HECM is insured by the FHA and carries federal consumer protections, including required counseling and a non-recourse guarantee. Some private or proprietary reverse mortgages exist for higher-value homes but are not FHA-insured.
No monthly mortgage payments are required while you live in the home. You do have to keep paying property taxes, homeowners insurance, and maintenance, and falling behind on those can trigger default, so the loan is not entirely cost-free to hold.
The loan becomes due. Heirs can repay the balance and keep the home, or sell it. Because a HECM is non-recourse, they never owe more than the home is worth, and if they want to keep it they can pay the lesser of the balance or 95% of the appraised value. FHA insurance covers any shortfall.
Jessica Martinez writes ReverseMortgageGuide's guides on reverse mortgages and home equity. Her focus is on the mechanics of a HECM: how it is priced, who qualifies, and what changes the payout.