All Reverse Mortgage has specialized in the HECM program for more than 20 years. As a HUD-approved direct lender, we originate HECM loans, and we believe every homeowner deserves clear, factual guidance from a knowledgeable source. We have always believed this is not a loan product to sell to people, but one to educate folks about and let them decide what is right for them — starting with our first customer, the mother of our CEO, Marian Branson.

What Is a HECM (Home Equity Conversion Mortgage)?

A HECM (pronounced “Heck-um”) is the HUD version of a reverse mortgage, insured through the Federal Housing Administration. It is available through HUD-approved lenders to borrowers aged 62 and over and their eligible spouses.

The program allows borrowers access to a portion of their home equity without requiring monthly mortgage payments for as long as they live in the home as their primary residence.

How Does a HECM Work?

The HECM is a loan. It is not a grant. You are not selling a portion of your equity to anyone, and you retain title to your property.

The difference between a HECM and a standard forward mortgage is the payment direction. On a forward loan, the borrower makes monthly payments and the loan balance reduces over time. On a HECM, borrowers make no required monthly payments for as long as they live in the home, and the loan balance grows as interest is added to the amount owed.

The loan is repaid when you sell your home, when you permanently move away, or when the last borrower passes away. At that point, your heirs have three choices: pay the loan off and keep the property, sell the home and retain any remaining equity, or walk away owing nothing.

Who Qualifies for a HECM?

Borrowers must be at least 62 years of age and own a home that meets HUD property standards. Married couples with one borrower over 62 and one under 62 can get a reverse mortgage with the younger spouse designated as an eligible non-borrowing spouse.

An eligible non-borrowing spouse is not a borrower on the loan, but they can continue to live in the home for life under the same terms as the original borrower (taxes and insurance paid on time, home maintained reasonably) after the borrowing spouse passes away. Because they are not a borrower on the loan, they cannot make draws on the line of credit if funds remain undrawn.

HUD uses a residual income method to determine qualification rather than the income ratio method used by most forward lenders. This is an easier, more lenient process. It only requires borrowers to have a certain amount of usable funds left to live on after all liabilities are paid each month, rather than requiring multiples of debts available as income.

Most borrowers are pleased to see they qualify even when they have modest income streams. HUD does run a financial assessment that requires borrowers to show they can pay taxes, insurance, and debts after closing, along with a proven history of paying obligations (especially housing-related ones like taxes and insurance) on time. HUD does not use FICO scores or other credit scoring as a basis for qualification, so borrowers with low credit scores from limited credit use are not penalized.

What Can HECM Funds Be Used For?

It is your home, your equity, and your decision how to use the funds.

Any existing loans on the property must be paid in full with the reverse mortgage proceeds, but borrowers can use remaining funds however they choose. Common uses include paying off other debts, making the home more accessible, completing repairs or improvements, covering medical expenses, or funding travel.

We have had borrowers fund college educations for grandchildren and others who wanted to make gifts so they could see the impact in their loved ones’ lives instead of waiting until after they were gone. The point is simple: it is your money and your call.

Why Is a HECM Considered Safe?

HECM loans are federally insured. No matter what happens to the lender, HUD steps in to ensure you continue to receive your money. The loans are also non-recourse, which means that no matter what happens to the real estate market, how much you borrow, how long you stay in the property, or how much interest accrues, you and your heirs can never owe more than the home is worth.

This matters most on a loan with a growing line of credit. Ten years into a HECM, you may have substantially more money available than when you started.

The 2009–2013 housing market is the cleanest historical proof point. Some markets lost as much as 50% of their value during that period. With the HUD HECM loan, no borrower ever had to pay back more than their home was worth — even when they had drawn more than the property ended up appraising for. HECM lines of credit were never frozen, never renegotiated, and never had their payments increased. Many bank HELOCs of that era were. HECM borrowers kept their terms intact while HELOC borrowers were calling their banks asking what happened to theirs.

HECM Points to Remember in 2026

A traditional mortgage requires monthly payments, and the balance owed gradually decreases. The HECM works in reverse — the term reverse mortgage comes from this dynamic. The HECM gives you access to your equity, you make no required payments, and the balance owed grows over time as interest accrues and as you draw more funds.

The money available to you is your principal limit. Four factors determine how much that is:

• The age of the youngest borrower on the loan — younger borrowers receive less because they can remain in the home longer and accrue more interest over time.
• Current expected interest rates — lower rates produce higher principal limits because less interest accrues over the life of the loan.
• Your home’s appraised value — all proceeds are calculated as a percentage of value.
• The lower of the appraised value or the HUD maximum lending limit of $1,249,125 — your home can be worth more than this, but additional value above the cap will not increase your HECM proceeds.

Distribution Options

There are several ways to receive your funds. You decide which suits your needs.

HUD limits initial draws when the entire amount is not needed to pay off existing liens or to purchase a new property. If you are not using the money to pay off a forward mortgage, you can access a maximum of 60% of your available reverse mortgage proceeds at closing or during the first 12 months on the line of credit program.

For example, if your principal limit is $200,000 and you have no loan on your home, you would have access to $120,000 at closing or any time in the first 12 months. On day 366, you could draw the remaining $80,000 (plus any growth on the line) if you wished. You are not required to draw all the funds.

The fixed-rate program works differently. It requires a single, lump-sum draw at closing. You must take all funds available to you on the first draw, and any funds you did not take are not available to you in future draws. Using the same example, you would receive the $120,000 initial draw, but no second draw would be available after one year. You would not owe those forfeited funds either, but you also could not access them later. This is why the adjustable-rate line of credit is by far the most popular option for borrowers who do not need a single lump sum.

The available distribution options are:

• Lump Sum Draw — A fixed rate requires a draw of the full lump sum. An adjustable rate can also draw the full lump sum or the funds available, while still allowing additional draws after one year.
• Line of Credit — You leave funds in a line of credit and access them at your discretion. You still decide if and how much of an initial draw you want at closing.
• Term or Tenure Monthly Payments — A term payment is an amount and duration you choose. A tenure payment is a payment for life, calculated based on eligibility.
• Combination — You can combine options, for example a short-term payment plus a line of credit, or a lump sum at closing plus a payment for life.

HECM Eligibility Requirements

To qualify, HUD requires:

• At least one borrower of a married couple must be age 62 or over.
• The property must be the primary residence of the borrower(s).
• While borrowers can bring cash to close, typically they must have sufficient equity to pay off all existing liens and loan costs with the reverse mortgage proceeds.
• All borrowers must complete HUD-approved counseling before they can begin their loan.
• HUD has established financial assessment guidelines to ensure borrowers can still pay taxes, insurance, upkeep, and other monthly obligations after closing.
• HUD does not allow delinquent federal debt.
• Borrowers who have not paid property taxes or insurance in a timely manner within the past two years may be required to set funds aside for these expenses.
• Citizenship, permanent residency, or eligible non-citizen status. Non-permanent residents are no longer eligible for new case numbers per HUD ML 2025-09.

Eligible Properties

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

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% of Maximum Claim Amount (the lower of the appraised value or $1,249,125). One-time, financed.
• Annual MIP: 0.5% of the loan balance. Annual renewal fee based on the outstanding balance.
• Origination: Capped at $6,000. One-time, financed.
• Appraisal, title, and closing fees: Typically 1–2% of the loan amount. These are set by service providers, not the lender.
• Servicing fee: Up to $35/month if applicable. Most lenders no longer charge a servicing fee, though it is allowed by HUD.

Why FHA Insurance Matters

FHA insurance is what makes the HECM program work. It protects the borrower, the borrower’s heirs, the lender, and the investors who buy the mortgage-backed securities that fund the program. In short, it keeps the program liquid so that borrowers continue to have access to reverse mortgages while ensuring no one in the chain loses money — lenders, investors, or borrowers’ family members.

FHA insurance delivers four specific protections:

• Borrowers continue to access funds even if the lender has issues.
• Non-recourse protection for the borrower and their heirs.
• Flexibility to repay early without penalty.
• Long-term program stability through guaranteed liquidity.

This is what makes the HECM the safest reverse mortgage option available. Jumbo programs are also non-recourse, but they carry higher rates to attract investors, and their terms are generally not as favorable. If liquidity dries up in the marketplace, the HECM remains available to borrowers because of the FHA insurance backstop.

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

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

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

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

Why Older Homeowners Choose HECM in 2026

The HECM has become a foundational retirement-planning tool for several practical reasons:

• Eliminate required monthly mortgage payments and improve cash flow.
• Set up a growing line of credit — the sooner the line is established, the sooner the unused balance grows.
• Pay for care needs or home updates without selling the home.
• Refinance into a safer program. Many homeowners face HELOC reset deadlines or have been waiting for forward-mortgage rates to drop.
• Purchase a home using HECM for Purchase.

With over 1.2 million HECMs endorsed historically and the $1,249,125 lending limit in effect for 2026, the HECM is a leading option for retirement equity planning. Older homeowner equity is at the highest level ever recorded — an estimated $14.39 trillion — and homeowners aged 62+ are increasingly using that equity through the safest available channel.

Frequently Asked Questions

Ready to Explore HECM 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 use our reverse mortgage calculator. Simple, trusted, 100% secure.