Home Equity Conversion Mortgage (HECM)

A Home Equity Conversion Mortgage (HECM) is a type of reverse mortgage that allows homeowners age 62 or older to convert the equity in their homes into cash. The loan is repaid when the borrower either sells the home, moves out permanently, or dies.

HECMs are offered by HUD-approved lenders and are insured by the Federal Housing Administration (FHA). The interest rate on a HECM is fixed for the life of the loan, and the monthly payments are based on the borrower's age, the amount of equity in the home, and the current interest rate.

There are two types of HECMs: the HECM Standard and the HECM Saver. The HECM Standard has a fixed interest rate and a variable monthly payment. The HECM Saver has a variable interest rate and a fixed monthly payment.

HECMs can be used for a variety of purposes, such as paying off debt, making home improvements, or supplementing retirement income. However, it is important to be aware of the costs associated with a HECM before you decide to take one out.

There are several fees associated with a HECM, including an origination fee, an annual fee, and a servicing fee. The borrower is also responsible for paying property taxes, homeowners insurance, and maintenance costs.

If the borrower dies before repaying the HECM, the loan balance is due in full. This amount can be paid by the borrower's estate, or it can be paid by the sale of the home. If the home is sold for less than the loan balance, the borrower's heirs will be responsible for the difference.

HECMs can be a good option for homeowners who need access to cash and who are willing to give up some equity in their homes. However, it is important to carefully consider all of the costs and risks associated with a HECM before you decide to take one out.