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A Home Equity Conversion Mortgage (HECM) is the Federal Housing Administration’s (FHA) insured reverse-mortgage program. It lets a qualifying homeowner convert part of the equity in a principal residence into cash while keeping title to the home. The borrower usually makes no scheduled monthly mortgage payment, but interest, mortgage-insurance premiums and other charges are added to the loan balance. The balance generally becomes due when the borrower sells the home or no longer lives there.
HECM proceeds are not free money and are not equal to all of the home’s equity. The amount depends on the youngest borrower’s age (or an eligible non-borrowing spouse’s age), the interest rate, the home’s eligible value and FHA’s maximum claim amount, plus the lender’s assessment of the borrower’s finances and property obligations.
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What a HECM is—and what it is not
A HECM is a loan secured by your home. You retain ownership and can sell the property, but the home serves as collateral. The Consumer Financial Protection Bureau (CFPB) states: “With a reverse mortgage loan, the title to your home remains in your name.”
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Unlike a traditional mortgage, a HECM does not require scheduled monthly principal-and-interest payments while the loan remains in good standing. Instead, the balance usually grows because interest, FHA mortgage-insurance charges and servicing or other permitted fees are added over time. You remain responsible for property taxes, homeowners insurance, maintenance and occupancy requirements.
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The loan generally becomes due when the borrower sells the home or no longer lives in it as a principal residence. At that point, the borrower, estate or heirs normally repay the balance from the sale or other funds. A HECM is therefore a way to access housing wealth, not a grant or a transfer of the house to the lender.
How much can a HECM provide?
The amount available is called the principal limit. It is calculated individually; a home’s market value minus its existing mortgage is not the amount you automatically receive.
Factors in the principal-limit calculation
- Youngest borrower or eligible non-borrowing spouse: Age affects the percentage of value that can be advanced. A younger age generally produces a smaller principal limit.
- Interest rate: The rate used for the loan affects the initial calculation and the balance growth after closing.
- Eligible property value: FHA limits the value used in the calculation, even if the home is worth more.
- Existing liens and required obligations: An existing mortgage generally must be paid off at closing, often with HECM proceeds, reducing cash available for other purposes.
- Financial assessment: The lender reviews income, credit history, property charges and other circumstances to determine whether set-asides or conditions are needed for taxes, insurance or repairs.
The 2026 FHA maximum claim amount
For FHA case numbers assigned on or after January 1, 2026, HUD announced a nationwide HECM maximum claim amount of $1,249,125. This is a program ceiling used in the calculation, not a promise that a borrower can borrow that amount. The borrower’s age, rate, home value, existing debt, fees and lender assessment determine the actual proceeds.
| Figure | What it means | Qualification |
|---|---|---|
| $1,249,125 | 2026 HECM maximum claim amount | Nationwide; applies to FHA case numbers assigned on or after January 1, 2026; a cap used in calculations, not an individual offer |
| $6,000 | Maximum HECM origination fee described by CFPB | CFPB guidance last reviewed May 28, 2024; confirm the current charge in a lender’s estimate |
| 0.5% of outstanding balance | Annual FHA mortgage-insurance premium described by CFPB | CFPB guidance last reviewed May 28, 2024; charged on the outstanding mortgage balance |
Who can qualify?
Age requirement
At least one borrower generally must be 62 or older. When two people borrow jointly, the age of the younger borrower is normally used in the principal-limit calculation. An eligible non-borrowing spouse can affect protections and the calculation, so the lender must document that person’s status before closing.
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Principal-residence and property rules
The home must be a qualifying property and your principal residence. Eligible property types can include a single-family home, an FHA-approved condominium, a manufactured home meeting FHA requirements or a small multi-unit property that you occupy as your principal residence. The lender’s appraisal and FHA property standards determine whether a specific home qualifies.
Equity and existing mortgage
You need sufficient equity, or enough HECM proceeds and other funds, to clear an existing mortgage and other liens at closing. If the available principal limit cannot cover those obligations, the transaction cannot proceed unless you bring the required cash.
Financial ability and counseling
You must demonstrate the ability to keep paying property taxes, homeowners insurance, maintenance and other required housing costs. Before applying, you receive counseling from a HUD-approved reverse-mortgage counseling agency. The counselor explains eligibility, the financial effects of a reverse mortgage and alternatives; counseling is separate from the lender’s sales process.
How the HECM process works
- Complete HUD-approved counseling. Choose a HUD-approved counseling agency and discuss your income, debts, housing costs, alternatives and the effect on your spouse or heirs. Keep the counseling certificate and written materials for the application.
- Submit an application and financial documents. The lender reviews identification, income, assets, credit obligations, property taxes, insurance and any existing mortgage. It may require a set-aside or payoff plan if your finances indicate a risk of falling behind on property charges.
- Obtain the appraisal and title review. An appraisal establishes the home’s eligible value, while a title search identifies mortgages, liens and ownership issues. Repairs or documentation may be required before closing.
- Receive the individualized principal-limit calculation. The lender combines the youngest applicable age, interest-rate assumptions, eligible value and FHA limit, then subtracts required payoffs and closing costs. Ask for the calculation and a written estimate of cash available after every deduction.
- Select a rate and payout structure. Depending on the loan, you may choose a line of credit, monthly term payments, monthly tenure payments or a fixed-rate lump sum. The rate structure and timing of withdrawals affect how quickly the balance grows.
- Close the loan. Upfront costs can be paid in cash or from HECM proceeds. Paying them from proceeds leaves less money for your other purposes. Review the final closing disclosure, payment schedule, interest rate and obligations before signing.
- Maintain the home and meet ongoing duties. Keep the property as your principal residence, pay taxes and insurance on time and maintain the home in good repair. Notify the servicer about extended absences, changes in marital status or other events that could affect the loan.
- Address the repayment event. When the home is sold or the borrower no longer lives there, contact the servicer promptly. The borrower or estate can generally repay the balance, sell the home or use another permitted source of funds under the loan documents.
HECM payout choices
Each option trades flexibility, predictability and balance growth differently. Ask the lender whether a specific option is available with the proposed rate structure and what unused-credit rules apply.
| Option | How money is received | Main cash-flow consideration |
|---|---|---|
| Line of credit | Draw funds as needed up to the available limit | Interest and related charges generally accrue on amounts drawn, preserving flexibility for later needs |
| Monthly term | Set payments for a specified number of months | Provides a planned duration; payments stop at the end of the term even if you continue living in the home |
| Monthly tenure | Payments for as long as the loan remains in force and you meet its obligations | Designed for ongoing cash flow, but the balance continues to accrue interest and fees |
| Fixed-rate lump sum | A single advance at closing | Interest and charges can apply to the full amount advanced immediately, reducing flexibility and potentially increasing early balance growth |
What does a HECM cost?
The absence of a required monthly mortgage payment does not mean the loan is inexpensive. Compare the total balance projected over time, not just the cash you receive at closing.
Upfront charges
- Origination fee: CFPB describes a HECM origination-fee cap of $6,000. The CFPB cost guidance was last reviewed May 28, 2024, so obtain a current itemized estimate.
- Third-party closing costs: Appraisal, title work, recording, credit reports, inspections and similar services can add to the amount due at closing.
- Initial FHA mortgage insurance: HECM insurance is charged at closing under FHA rules. The lender’s disclosure shows the amount and whether it is financed.
- Existing-loan payoff: Any mortgage or lien that must be cleared consumes principal-limit proceeds before you receive cash.
Ongoing charges and balance growth
- Interest: The selected rate structure determines how interest accrues on the outstanding balance and new advances.
- Annual mortgage insurance: CFPB describes an annual premium of 0.5% of the outstanding mortgage balance. Confirm the current treatment in your disclosures.
- Servicing fees: The servicer may charge permitted fees for administering statements, payments and the line of credit.
- Property costs: Taxes, insurance, utilities and repairs remain your responsibility and are not eliminated by the HECM.
Request a written projection showing the balance after several years under your planned withdrawals. Compare the amount of cash received, the fees financed, the rate, the remaining credit line and the estimated balance—not simply the monthly payment, which may be zero.
Your obligations after closing
Occupy the home
The property must remain your principal residence under the loan’s rules. A prolonged move to another residence, a sale or another event that ends principal-residence status can trigger repayment.
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Property taxes, homeowners insurance and any required flood insurance must be paid when due. Falling behind can cause a tax lien, insurance lapse, foreclosure risk or a required repayment even if you have made every required HECM disclosure.
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Maintain and repair the property
Keep the home in condition that protects its value and satisfies lender and FHA requirements. If the lender identifies needed repairs, ask whether a repair set-aside, contractor documentation or a deadline applies.
Respond to the servicer
Open and answer servicing notices, complete annual occupancy or insurance certifications when requested and report changes that could affect the loan. Ignoring notices can make a correctable problem harder to resolve.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What happens when the loan becomes due?
A repayment event usually occurs when the borrower sells the home or no longer lives there as a principal residence. The borrower or estate should notify the servicer, request the payoff amount and ask for the deadlines and available options in writing.
If the home is sold
Sale proceeds are typically used to repay the HECM and permitted selling costs. If the sale price is below the loan balance, FHA insurance generally provides the program’s nonrecourse protection, subject to the loan documents and required procedures; neither the borrower nor heirs should assume a shortfall is handled automatically without contacting the servicer.
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If heirs want to keep the home
Heirs generally need to repay the balance or arrange another permitted resolution to retain the property. They should contact the servicer quickly after receiving the due-and-payable notice, obtain the current balance and ask about available time extensions or documentation requirements.
If a borrower moves temporarily
Temporary absence rules can be fact-specific. Before an extended hospital stay, move to assisted living or other absence, ask the servicer how occupancy will be evaluated and what evidence is required.
HECM compared with other ways to use home equity
A HECM is one choice among several. A traditional home-equity loan or home-equity line of credit usually requires monthly payments and underwriting based on income and credit, while a HECM generally defers repayment but adds interest and fees to the balance. Selling or downsizing can release equity without a reverse-mortgage balance but changes where you live. A proprietary reverse mortgage is a private product rather than the FHA-insured HECM program and can have different eligibility rules, limits, insurance and consumer protections.
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1Clear out junk files and repair common Windows errors2Scan for outdated or missing drivers - takes under a minute3Repair Windows errors before they cause bigger problemsUse the comparison that fits your actual need: a short-term expense may not justify the upfront costs of a reverse mortgage; a recurring cash-flow gap may make payment timing more important than a large initial advance; and an existing low-rate mortgage can make the required payoff particularly significant.
Questions to ask before signing
- What is my principal limit, and how did the youngest borrower’s age, rate and eligible value affect it?
- How much of the proceeds will pay off my current mortgage, liens and closing costs?
- What interest-rate adjustments are possible, and how is interest calculated on drawn and undrawn amounts?
- What are the initial and annual FHA mortgage-insurance charges, origination fee and servicing fees?
- How much cash will I receive at closing, and how much credit remains afterward?
- What taxes, insurance, repairs and occupancy certifications must I complete, and by what dates?
- What notice will my spouse or heirs receive if the loan becomes due, and whom should they call?
- What alternatives did the counselor identify, and how do their total costs compare with this HECM?
Bottom line for a prospective borrower
A HECM can turn part of a qualifying homeowner’s equity into a line of credit, monthly income or a lump sum without giving up title or making scheduled monthly mortgage payments. In exchange, the balance grows, upfront and ongoing charges reduce available equity, and the borrower must keep paying taxes and insurance, maintain the home and satisfy occupancy rules. Get HUD-approved counseling, obtain an individualized lender estimate and compare the projected balance and repayment plan with alternatives before deciding.
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