What is the downside to a HECM loan?

The primary downside of a reverse mortgage is that the balance increases over time because no monthly mortgage payments are required. With an increasing balance, the equity position of the property changes, reducing the potential inheritance for your heirs. It is important to note that borrowers have the right to make payments at any time without penalty, though, and can eliminate the growing balance if they choose.

What happens when you outlive a HECM?

You cannot outlive a reverse mortgage loan. A reverse mortgage borrower cannot have their loan called due and payable simply because the accrued balance exceeds the home's value. The loan remains in good standing as long as the borrower continues to live in the home as their primary residence while maintaining the home's taxes and insurance. You can come to a point where no more funds are available in your line of credit, but you can still live in the home beyond that point with no monthly mortgage payments due on the loan.

Can you refinance a HECM loan?

Yes. If your home has increased in value and you have sufficient equity, you may be eligible to refinance your HECM for additional funds. HUD requires that the new loan offer a real benefit to you, and you must requalify based on income, credit, and property condition. Refinancing is allowed after 18 months, but it’s only approved when it clearly helps the borrower.

See How a HECM Works for You

Q: Is a HECM the same as a reverse mortgage?

A HECM, or "Home Equity Conversion Mortgage," is the most commonly used type of reverse mortgage, but it's not the only option. The HECM is a government-insured reverse mortgage program offered through the FHA. Non-FHA reverse mortgages are also available from private lenders, so it's always a good idea to explore all available programs and choose the one that best meets your needs.

Q: What is a HECM reverse mortgage purchase loan?

We have volumes of information about purchase reverse mortgages on our website. We would also be more than happy to discuss specifics with you regarding your circumstances and provide you with exact numbers based on your age(s), desired property, area of the country, and other relevant factors (different parts of the country have varying purchasing costs). You can also contact us by visiting our website and requesting information or calling us at 800-565-1722.

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HECM Explained: 2026 Home Equity Conversion Mortgage Requirements, Limits & Benefits

July 13, 2025

Michael G. Branson Edited by

Cliff Auerswald

12 comments

All Reverse Mortgage has specialized in the HECM program for more than twenty years. As a HUD-approved direct lender, we originate HECM loans under the same federal rules described in this guide, and we believe homeowners deserve clear, factual guidance from a knowledgeable source. That has always shaped the way we explain the reverse mortgage program, starting with our first customer, Marian Branson.

What Is a HECM (Home Equity Conversion Mortgage)?

A HECM is the FHA-insured reverse mortgage for homeowners age 62 or older that allows you to access part of your home equity without making required monthly mortgage payments.

How does a HECM work?

You remain the owner and continue living in the home. As long as you occupy it as your primary residence, maintain it, and stay current on taxes and insurance, the loan does not require monthly mortgage payments. The balance becomes due when the home is sold, when you move out, or when the last borrower passes away.

Who qualifies for a HECM?

Qualifying requires at least one borrower to be 62 or older, the home to be your primary residence, the property to meet FHA standards, and completion of HUD-approved counseling. A financial assessment ensures you can continue paying taxes, insurance, and upkeep.

What can HECM funds be used for?

Borrowers use funds to pay off an existing mortgage, ease cash-flow needs, set up a growing line of credit, complete home repairs, or cover long-term retirement expenses.

Why is a HECM considered safe?

HECMs are federally insured and follow HUD rules. They are non-recourse loans, meaning neither you nor your heirs ever owe more than the home’s value at sale. FHA insurance guarantees that access to funds continues as long as program obligations are met.

How a Home Equity Conversion Mortgage (HECM) works in 2025: payout options and eligibility

Table of Contents

• What Is a HECM (Home Equity Conversion Mortgage)?

• How does a HECM work?

• Who qualifies for a HECM?

• What can HECM funds be used for?

• Why is a HECM considered safe?

• How a HECM Works in 2025–2026

• HECM Eligibility Requirements for 2026

• HECM Lending Limits and Benefits by Age (2025)

• HECM Costs and FHA Insurance

• Reverse Mortgage vs. HELOC: Feature-by-Feature Comparison

• Why Older Homeowners Choose HECM in 2026

• Frequently Asked Questions

• Why the HECM Is Still the #1 Reverse Mortgage in 2026

How a HECM Works in 2025–2026

A traditional mortgage requires monthly payments to build equity. A HECM works in reverse: it lets you draw from existing equity without making required payments, as long as the home remains your primary residence and property obligations are met.

Your available funds, called the principal limit, are based on:

Your age (or the youngest borrower)
Current interest rates
Your home’s appraised value
The 2026 maximum claim amount (MCA) of $1,249,125

Example for context

A 76-year-old homeowner with a $600,000 home may access around 45 percent of the home’s value, adjusted for current rates and FHA insurance.

Distribution options

You choose how to receive funds:

Lump sum (fixed-rate)
Line of credit (available as needed; unused credit grows over time)
Monthly payments (lifetime or fixed term)
Combination of options

When the loan becomes due and payable—typically at the time of sale or when the borrower moves out—the loan is usually repaid from sale proceeds. If the balance ever exceeds the home’s sale price, FHA insurance covers the difference.

With the HECM line of credit, available funds can grow over time, often giving you more access the longer it remains unused.

2025 vs. 2026 HECM Changes	2025	2025
Maximum Claim Amount	$1,209,750	$1,249,125 (+5%)
Residency Rules	Allowed non-permanent	Excluded

HECM Eligibility Requirements for 2026

To qualify, HUD requires:

At least one borrower age 62+
Primary residence occupancy
Sufficient equity to pay off existing liens
Completion of HUD-approved counseling
A financial assessment to confirm the ability to pay taxes, insurance, and upkeep
No delinquent federal debt
Citizenship, permanent residency, or eligible non-citizen status (non-permanent residents no longer eligible for new case numbers -(HUD ML 2025-09)

Eligible properties include:

Single-family homes and 1–4 unit properties (borrower must occupy one unit)
FHA-approved condominiums
Certain manufactured homes meeting HUD standards
Properties with ADUs are now explicitly allowed.

HECM Lending Limits and Benefits by Age (2025)

Age of Borrower	Principal Limit Factor	Current Lending Limit
tablepress547
62	38.9%	$1,249,125
63	39.6%	$1,249,125
64	40.3%	$1,249,125
65	41%	$1,249,125
66	41.7%	$1,249,125
67	42.5%	$1,249,125
68	43.3%	$1,249,125
69	44.1%	$1,249,125
70	44.5%	$1,249,125
71	44.5%	$1,249,125
72	44.7%	$1,249,125
73	45.6%	$1,249,125
74	46.4%	$1,249,125
75	47.3%	$1,249,125
76	47.9%	$1,249,125
77	48.9%	$1,249,125
78	50%	$1,249,125
79	50.5%	$1,249,125
80	51.6%	$1,249,125

(Source: HUD.gov PLF Tables, 2025. Subtract ~3% for upfront mortgage insurance and standard fees.)

HECM Costs and FHA Insurance

HECM costs include required FHA insurance and standard closing costs, most of which can be financed.

Upfront and ongoing costs:

FHA Upfront MIP: 2 percent of MCA
Annual MIP: 0.5 percent of the loan balance
Origination: Capped at $6,000
Appraisal, title, and closing fees: Typically 1–2 percent of the loan amount
Servicing fee: Up to $35/month (if applicable)

Why FHA insurance matters

FHA insurance is the foundation of the HECM program. It ensures:

Borrowers can access their funds even if the lender has issues
Non-recourse protection
Flexibility to repay early without penalty
Long-term program stability

This is what makes HECM the safest reverse mortgage option available.

FHA insurance is what makes HECM safer. It guarantees your funds—even if the lender goes out of business.

Here’s a side-by-side look at HECM, proprietary reverse mortgages, and HELOCs in 2026:

Reverse Mortgage vs. HELOC: Feature-by-Feature Comparison

Compare Features	HECM Reverse Mortgage (FHA-Insured)	Proprietary Reverse Mortgage (Non-FHA)	Traditional HELOC (Home Equity Line of Credit)
Minimum Age to Qualify	62	55–62 (varies)	No minimum
Line of Credit Term	Lifetime	10 years	10–15 years draw period
Can It Be Frozen or Reduced?	No (protected by FHA)*	Yes*	Yes*
Line of Credit Growth	Yes, grows lifelong	Limited	Limited
Monthly Mortgage Payments Required	No	No	Yes
Income Requirements	Minimal (financial assessment)	Minimal (financial assessment)	Strict
Credit Score Needed	No minimum	No minimum	620+ typical
Savings/Reserves Needed	No	No	Often required
Closing Costs	Yes (can be financed)	May be lower	Yes (can be financed)
Fixed Interest Rate Option	Available for lump sum	Available	Variable common
Rate Index	CMT or SOFR (2025)	Varies	Prime rate

*Notes: HECM protected unless obligations unmet. Proprietary/HELOC can be frozen if values drop or payments missed (source: CFPB HELOC Brochure, accessed July 13, 2025). For more, see our HECM vs. HELOC Guide.

For a deeper look, see: HECM vs. HELOC Comparison: Features & Decision Guide.

Why Older Homeowners Choose HECM in 2026

Eliminate required monthly mortgage payments

Improve cash flow
Set up a growing line of credit
Pay for care needs or home updates
Refinance into a safer program
Purchase a home using HECM for Purchase

With over 1.2 million HECMs endorsed historically and enhanced limits this year, it’s a go-to option for retirement planning.

Frequently Asked Questions

Is a HECM the same as a reverse mortgage?

What is the downside to a HECM?

What happens if you “outlive” a HECM?

What is a HECM reverse mortgage purchase loan?

Can you refinance a HECM?

Why the HECM Is Still the #1 Reverse Mortgage in 2026

Insured by the Federal Housing Administration
Provides tax-free cash without monthly mortgage payments
Lets you stay in your home
Borrower protections you won’t find elsewhere
Flexible payout options: lump sum, line of credit, or monthly income
Designed for homeowners 62+ seeking peace of mind

Ready to Explore Benefits? Get your free HECM quote with ARLO™ insights from All Reverse Mortgage, America’s #1 rated HUD-approved direct HECM lender with a 4.99/5 rating. Call (800) 565-1722 or click here for your free quote. Simple, trusted, 100% secure.

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12 Comments on this Article

Colin J.
August 26th, 2024

My parents have an HECM reverse mortgage. At this point, it seems better to withdraw the remaining credit from the account and vacate the house, rather than sell it and pay off the loan balance. Are there any hidden costs or tax implications to doing this?
Reply to Colin
- Michael Branson
  August 31st, 2024
  
  Hello Colin,
  I cannot provide legal or tax advice, so I strongly recommend contacting your accountant or attorney for assistance with these matters. However, I do have a question: Are your parents unable to live in the home due to health issues or other circumstances? They can remain in the home even after the line of credit is fully depleted without having to make any payments on the loan. Unless they are unable to stay in the home for some other reason, it may be unwise to give up the home, especially when they only need to cover taxes and insurance.
  Reply to Michael
Margaret H.
May 9th, 2024

What happens to any money left over in a HECM line of credit loan if the owner passes away?
Reply to Margaret
- Michael Branson
  May 13th, 2024
  
  Hello Margaret,
  Any money left on the line of credit is money that was never borrowed and, therefore, does not need to be repaid by the borrower's heirs after the borrower passes. For example, if the borrower has a line of credit available of $100,000 but only borrowed $50,000 of that money, there is not $50,000 of cash floating around that you need to worry about, but rather $50,000 that was never borrowed so the payoff of the loan would only be $50,000 and not the entire $100,000 (plus of course any interest that accrues on outstanding funds and any financed fees).
  They work the same way if you think about a standard Home Equity Line of Credit (HELOC) loan. If you have a line of credit but pay the loan off (or pass away) before you use the entire line amount, the lender doesn't do anything with the remaining funds that would have been available in the line. They just freeze the line at that point, and you would only owe the actual money you borrowed.
  Reply to Michael
Norma
April 24th, 2024

My parents home was appraised at $145,000 when they took out a HECM reverse mortgage. When they pass will the loan be capped at $145,000 and will the heirs be able to pay the $145,000 off to keep the home?
Reply to Norma
- Michael Branson
  April 27th, 2024
  
  Hi Norma,
  When your parents leave, the heirs will be able to repay the loan and keep the property if they wish for the lower of the amount owed on the loan or 95% of the current appraised value at that time.
  The initial appraised value is not a factor in the amount borrowers could ultimately borrow, considering the growth of credit lines, nor the ultimate amount that will be repaid, as many borrowers do not use all their reverse mortgage funds available. In the case of times when property values have fallen, family members have had to pay less than the original appraised value to keep the home even when the amount owed was higher than the original appraised value of the home after the borrower borrowed all available funds plus accrued interest for many years. But even when the amount owed exceeds the original appraised value, and no matter what the current value may be, the heirs always have the option to keep the home and pay the loan in full for the amount owed or 95% of the current appraised value at that time.
  So, the amount you will need to pay off to keep the home will depend not on the original appraised value but on the current balance of the loan and the current value of the property. If the amount owed is $100,000 and the current value is $200,000, the amount you would need to pay to repay the loan in full would be $100,000, or the loan's outstanding balance. If the current value was only $100,000 and the amount owed was $125,000, you could repay the loan in full and keep the property for $95,000 or 95% of the current market value. And, of course, heirs always have the option to walk away and owe nothing if that's what they choose to do.
  Reply to Michael
Leiland T.
August 29th, 2022

Hi ARLO,
My parents have a HECM. The current payoff is about $333,000. The maximum principal amount in the contract is $352,500. My parents took a lump sum at the beginning of the contract in 2009, $140,000. My question is, will the payoff on the HECM continue to rise at the 5.56% annual rate? My parents are in good health, and we do not anticipate them passing any time soon. The current market value of the home is well over the current payoff. Please advise. Thank you.
Reply to Leiland
- Michael Branson
  August 29th, 2022
  
  Hello Leiland,
  
  Yes, that loan will continue to accrue interest at 5.56% plus the MIP renewal (.50% if memory serves me correctly). They have the option to just let the balance continue to rise and continue to live in the home or they can choose to sell the home at this time and reinvest the equity in another property or wherever they choose.
  If you or you and your siblings (if you have any brothers and/or sisters) are able and are so inclined to do so, you can also choose to fund a family reverse for your parents if both you and your parents would like to do so.
  I would recommend that you speak with an attorney or accountant to establish it in the best possible way to avoid taxes but if this is something you all want to do, I have spoken with people in the past whose family tax advisers were able to set things up for them that they felt would benefit all parties and create the least tax burden on the heirs as a result while keeping the home in the family and preserving equity. I have not spoken with anyone who has done this for a while and tax laws are subject to change so I would strongly suggest you get competent legal and tax guidance before you do anything.
  
  I am aware that not all families have this option. Many borrowers opted for the fixed rate loan that required them to take a full draw and this option didn't help a lot of borrowers as it meant accruing interest on the entire balance from the start - even if they didn't need all the money. They can repay some of the funds if they wish to and do not believe they will need them if they are sitting in a bank savings account collecting very little interest. They need to know that if they do repay some of all the funds, on the fixed rate option, they can never repay the money and reborrow it - but there is no prepayment penalty.
  Depending on how much the home is worth over the current loan amount, they can choose to pay off the old loan with a new reverse mortgage and can opt for an adjustable loan that allows them to only borrow what they need. This means that if their new line available would give them more money now, but they don't need that money now, they do not need to take any advances and can leave the money in the line (which also grows on the unused portion of the line). Then the larger line gives them more money available to use later if they need it.
  
  It all depends on your goals. As you said, they are in good health and if you are looking to stop all interest accruing you may want to look for a way to eliminate the loan. If you want to find a way to get them the access to more money without having to be the source of those funds, you may want to check into a refinance into the line of credit program.
  Reply to Michael
Donna K.
April 27th, 2022

When we moved in 2015, we took out a HECM mortgage, we put down $100,000 on a sales price of $300,000. The value now is $370,000, my latest statement shows loan balance $280,000. If we sell, am I looking at the difference of the $280,000 minus the $370,000?
Reply to Donna
- Michael Branson
  May 2nd, 2022
  
  Hello Donna,
  That would be correct. The HECM loan balance has grown by $80,000 over the past 7 years with the interest accrual because you have not been required to make any mortgage payments during this time.
  With a standard or forward mortgage, you would have a larger equity position but would have been making those payments on a monthly basis.
  Reply to Michael
Michael
August 12th, 2019

I have been exploring the possibility of taking an HECM but the mortgage Insurance Upfront premium seems to make the product way overpriced. In California our home is worth well over $1 Million which would make our initial premium $14, 530. This seems extremely expensive. You would also have to pay interest and annual premium on the $14,530 balance. Sounds like a very bad deal to me.
Reply to Michael
- Michael Branson
  August 12th, 2019
  
  Hello Michael,
  
  The HUD mortgage insurance is required on all FHA reverse mortgages. Since your home is valued over $1,000,000, have you considered looking at the proprietary or jumbo reverse mortgage programs?
  They really are not too beneficial for borrower whose homes are worth less than $900,000 just to avoid paying the mortgage insurance premium but many borrowers in your position are pleased with the jumbo results and there is no mortgage insurance on the private programs.
  Reply to Michael

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