What Is a HECM (Home Equity Conversion Mortgage)?
Published September 1, 2024 · Updated May 21, 2026
A Home Equity Conversion Mortgage (HECM, pronounced “heck-um”) is the most common type of reverse mortgage in the United States. It is an FHA-insured loan that allows homeowners age 62 and older to convert part of their home equity into cash without selling the home or making monthly mortgage payments. HECMs account for nearly all reverse mortgages originated in the U.S.
For signing agents, HECM closings are a specific category of loan signing. They pay more than standard refinances (typically $125 to $175 per signing) but require more patience and a few extra steps.
How It Works
With a traditional mortgage, the borrower makes monthly payments to the lender. With a HECM, the lender makes payments to the borrower. The loan balance grows over time as interest and mortgage insurance premiums are added each month. The loan is repaid when the borrower dies, sells the home, or moves out permanently (defined as being absent for 12 consecutive months or more).
The borrower retains title to the home. The lender has a lien, just like a regular mortgage. When the loan becomes due, the home is sold and the proceeds repay the lender. If the sale price exceeds the loan balance, the borrower or their heirs keep the difference. If the loan balance exceeds the sale price, the FHA insurance covers the shortfall. The borrower (or their estate) is not personally liable for the difference.
Eligibility Requirements
Borrowers must be at least 62 years old (both spouses need to be 62 if both are on title) and either own the home outright or have significant equity, usually 50% or more. Existing mortgage balances are paid off at closing from the HECM proceeds.
- Occupancy: The home must be the borrower’s primary residence (live there at least 6 months per year). Investment properties and second homes do not qualify.
- Counseling: Must complete a session with a HUD-approved reverse mortgage counselor before the lender can take an application. This takes 60 to 90 minutes, costs about $125 to $200, and can be done by phone.
- Financial assessment: The lender reviews the borrower’s income, credit history, and ability to pay property taxes, insurance, and maintenance. Borrowers who do not meet the financial assessment may be required to set aside part of the loan proceeds in a Life Expectancy Set-Aside (LESA) to cover these costs.
How Much Can a Borrower Get
The amount depends on the borrower’s age, the home’s value (subject to the FHA lending limit), and current interest rates. Older borrowers can access more equity because their life expectancy is shorter, meaning the loan has less time to accrue interest.
As of 2025, the FHA lending limit for HECMs is $1,209,750. This is the maximum home value used in the calculation, even if the home is worth more. Borrowers with higher-value homes may consider proprietary (jumbo) reverse mortgages from private lenders, which do not have this cap.
Typical example: A 72-year-old borrower with a $400,000 home that is paid off might be able to access roughly $200,000 to $240,000 in proceeds, depending on interest rates.
Payout Options
- Lump sum: All at once at closing. This is the only option with a fixed interest rate. The borrower receives a single payment and the full amount starts accruing interest immediately.
- Monthly payments (tenure): Fixed monthly amount for as long as the borrower lives in the home. The total payout is not guaranteed because it depends on how long the borrower stays.
- Monthly payments (term): Fixed monthly amount for a specific number of years chosen by the borrower.
- Line of credit: Borrow only what you need, when you need it. Unused credit grows over time at the same rate as the loan’s interest rate. This growth is not earnings on an investment; it simply means more credit becomes available over time.
Borrowers can also combine any of these options. A common approach is taking a small lump sum at closing plus a line of credit for future needs.
Costs and Fees
HECMs carry higher closing costs than standard mortgages:
- Upfront MIP: 2% of the home value or FHA lending limit (whichever is less). On a $400,000 home, that is $8,000.
- Annual MIP: 0.5% of the outstanding loan balance, added to the loan each month.
- Origination fee: The greater of $2,500 or 2% of the first $200,000 of home value, plus 1% of the amount over $200,000. Capped at $6,000.
- Closing costs: Appraisal ($500 to $800), title insurance, recording fees, and other standard closing costs, typically $2,000 to $5,000 total.
- Servicing fee: $30 to $35 per month, added to the loan balance.
All of these costs can be financed into the loan. The borrower pays little or nothing out of pocket at closing.
What Signing Agents Need to Know
HECM closings differ from standard mortgage signings in several ways:
- Right of rescission: Borrowers have 3 business days after closing to cancel the transaction for any reason. Funds are not disbursed until this period ends. Saturdays count as business days; Sundays and federal holidays do not.
- Counseling certificate: The document package will include a HUD HECM Counseling Certificate. This confirms the borrower completed the required counseling session. It is not a document you notarize, but it should be in the package.
- Older borrowers: HECM borrowers are often in their 70s or 80s. Some may have difficulty reading small print, hearing instructions, or signing their name the same way it appears on their ID. Allow extra time. Speak clearly. Offer to read key sections aloud if they wish. Do not rush them.
- Non-borrowing spouses: A younger spouse who does not meet the age requirement may not be on the loan. Under FHA rules, a Non-Borrowing Spouse (NBS) may remain in the home after the borrowing spouse dies, but they will not receive further loan payments and must continue paying taxes and insurance. They must have been identified at the time of closing.
Your role is the same as any mortgage closing: verify identity, witness signatures, ensure proper notarization. You are not advising the borrower on whether a reverse mortgage is the right financial decision. If a borrower asks you whether they should sign, direct them to their counselor or lender.
HECM packages tend to be thicker than standard refinances. Expect 150 to 200 pages. Plan for signings to take 60 to 90 minutes rather than the typical 30 to 45.
What Happens When the Loan Becomes Due
When the last surviving borrower dies, moves out permanently, or fails to meet the loan obligations (taxes, insurance, maintenance), the loan becomes due. At that point, the borrower or their estate has several options:
- Repay the loan and keep the home: Pay off the full balance, usually by refinancing into a traditional mortgage or using other funds.
- Sell the home: Sell the property and use the proceeds to repay the loan. Any remaining equity goes to the borrower or their heirs.
- Deed the home to the lender: Walk away by signing a deed in lieu of foreclosure. The lender sells the property. The FHA insurance covers any shortfall.
Heirs typically get 6 months to decide what to do, with possible extensions up to 12 months.
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Frequently Asked Questions
Who qualifies for a HECM?
Homeowners who are at least 62, live in the home as their primary residence, have significant equity (usually 50%+), and complete HUD-approved counseling.
Does the bank own the home with a reverse mortgage?
No. The borrower retains title and ownership. The lender places a lien on the property, just like a regular mortgage.
When does a HECM get repaid?
When the borrower dies, sells the home, or moves out permanently (usually defined as being absent for 12+ months). The home is sold to repay the loan. Any remaining equity goes to the borrower or their heirs.
Can you lose your home with a HECM?
Yes, if you fail to pay property taxes, homeowners insurance, or maintain the home. These are ongoing obligations. Failure to meet them can trigger foreclosure.
What is the right of rescission on a HECM?
The borrower has 3 business days after signing to cancel the transaction for any reason. Funds are not released until this period expires.
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