HECM – Home Equity Conversion Mortgage: How It Works in 2025

Q: 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.

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 give you exact numbers based on your age(s), desired property, area of the country, etc. (different parts of the country have different purchasing costs). You can also contact us by visiting our website and requesting information or calling us at 800-565-1722.

July 8, 2025

Michael G. Branson Edited by

Cliff Auerswald

12 comments

If you’re a homeowner aged 62 or older, the HECM (Home Equity Conversion Mortgage) could be a powerful tool for your retirement. It allows you to tap into your home’s equity—without selling your home or making monthly mortgage payments. Insured by the Federal Housing Administration (FHA) and regulated by HUD, the HECM is the most widely used reverse mortgage in the U.S.

In this simple guide, we’ll explain exactly how a HECM works, who qualifies, and what you can expect in 2025.

Table of Contents

• What Is a HECM Reverse Mortgage?

• How a HECM Reverse Mortgage Works

• 2025 HECM Loan Requirements

• HECM Costs and Fees

• Why FHA Insurance Matters

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

• Why Older Homeowners Choose HECM Loans

• Frequently Asked Questions (FAQs)

• Why the HECM Is Still the #1 Reverse Mortgage in 2025

What Is a HECM Reverse Mortgage?

A HECM, short for Home Equity Conversion Mortgage, is a government-insured reverse mortgage program designed specifically for homeowners 62 and older. Unlike traditional loans, a HECM lets you convert a portion of your home equity into tax-free cash—while still keeping full ownership of your home.

There are no required monthly mortgage payments. You can stay in your home for life, and the loan is repaid only after you sell the home, move out permanently, or pass away.

How a HECM Reverse Mortgage Works

With a traditional mortgage, you make monthly payments to the lender. With a HECM reverse mortgage, it works the other way around—you get paid, and there are no monthly payments required as long as you live in the home and keep up with property charges like taxes and insurance.

You choose how to receive the money:

Lump Sum: All at once (fixed interest rate)
Line of Credit: Draw as needed—plus unused funds grow over time
Monthly Payments: Get steady income for life (tenure) or a set term
Combo: Mix and match options based on what fits you best

You keep full ownership and control of your home. When you leave the home for good, the loan is repaid—typically through the sale of the home. And thanks to FHA insurance, your heirs will never owe more than the home is worth.

With the HECM line of credit option, your available funds can grow over time—giving you access to even more money the longer you leave it untouched.

2025 HECM Loan Requirements

To be eligible for a HECM, here’s what’s required:

✅ You’re 62 or older
✅ You live in the home as your primary residence
✅ You own your home outright, or your current mortgage is small enough to pay off with the HECM
✅ You complete a HUD-approved counseling session
✅ You pass a financial assessment to confirm you can keep up with taxes, insurance, and maintenance
✅ You have no delinquent federal debts

Eligible homes include:

Single-family homes (up to 4 units, as long as you live in one)
FHA-approved condos
Some manufactured homes that meet HUD guidelines

HECM Costs and Fees

Yes, there are costs—but they’re clearly disclosed upfront, and they help protect you under the FHA insurance program. Most borrowers roll these costs into the loan, so you don’t pay anything out of pocket.

Here’s what’s included:

Upfront FHA Insurance (UFMIP): Protects you and your heirs
Annual Mortgage Insurance (MIP): Keeps the loan compliant and protected
Closing Costs: Lender fee, appraisal, title, and other standard charges

HECMs are non-recourse loans, which means neither you nor your heirs can ever owe more than the home is worth—even if housing values decline.

Why FHA Insurance Matters

What makes the HECM different from other equity loans is the FHA insurance. It provides several key protections:

Guarantees your payments – even if your lender runs into trouble
Makes the loan non-recourse – meaning no personal liability beyond the home’s value
Allows flexible repayment – you can repay the loan at any time with no penalty

This insurance gives peace of mind to you and your family. That’s why HECM has become the most trusted reverse mortgage in the country.

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

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
Line of Credit Term	Lifetime	10 years	Lifetime
Can It Be Frozen or Reduced?	No*	Yes*	No*
Line of Credit Growth	Yes, grows for life	Limited	Yes, grows over time
Monthly Mortgage Payments Required	Yes	Yes	No
Income Requirements	Minimal	Minimal	Minimal
Credit Score Needed	No minimum	No minimum	No minimum
Savings/Reserves Needed	Any	Any	Not required
Closing Costs	Yes (can be financed)	May be lower	Yes (can be financed)
Fixed Interest Rate Option	Available for lump sum	Available for lump sum	Available for lump sum
Rate Index	Treasury	Treasury	Treasury

Important Notes:
HECM reverse mortgages are generally protected from being frozen or reduced, even if home values decline. However, access may be limited if taxes or insurance aren’t paid, or if the borrower no longer lives in the home.

Proprietary reverse mortgages and HELOCs can be frozen, reduced, or called due in the event of missed payments, property issues, or significant home value drops.

HELOCs often include balloon payments or repayment periods after the draw phase ends, which can put pressure on borrowers to refinance or repay quickly.

Source: Consumer Financial Protection Bureau HELOC Brochure (Accessed March 13, 2025).

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

Why Older Homeowners Choose HECM Loans

Many retirees use a HECM – Home Equity Conversion Mortgage to:

Eliminate their monthly mortgage payments
Supplement Social Security or pension income
Pay for healthcare or in-home care
Cover home improvement costs
Provide a financial safety net in retirement
Buy a new home using a HECM for Purchase

The flexibility and control you get with a HECM can make a real difference—without selling your home or relying on high-interest credit.

Frequently Asked Questions (FAQs)

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.

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.

How does a HECM reverse mortgage work?

A reverse mortgage allows you to borrow money using your primary residence as collateral without the burden of making mandatory monthly mortgage payments. The loan can be repaid once the last surviving borrower permanently vacates the property or when the home is sold.

Can you lose your house with a HECM?

Yes. A reverse mortgage requires that you live in the home as your primary residence, maintain the property taxes and insurance, and upkeep your home. Failure to do any of these will result in the loan being called due and payable, which could lead to foreclosure.

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.

How long must we occupy the home before we can apply for a HECM reverse mortgage?

There is no minimum time required. You are eligible if you occupy the home as your primary residence.

Can we get an HECM if my spouse is under 62?

Yes, you can in all states except Texas, where the law prohibits it. Your wife would be an approved non-borrowing spouse. If you pass away before the funds are fully used, she would not have access to any remaining funds, but she would still be allowed to remain in the home for life without repaying the loan.

Can you use funds from the HECM to purchase a Second Home or an investment property?

You can use the funds for any purpose you wish. HUD only frowns on a lender that provides you with a loan and sells you a financial product or service that may tie those funds up or put them at risk. One product lenders should refrain from offering their reverse mortgage clients is annuities. But you can use the funds to purchase other property if you wish.

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 give you exact numbers based on your age(s), desired property, area of the country, etc. (different parts of the country have different purchasing costs). You can also contact us by visiting our website and requesting information or calling us at 800-565-1722.

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.

Can I use HECM to make a down payment on a house for my daughter?

You can use HECM loan proceeds for any reason you wish. We have seen parents use the money for their children, and even grandparents who wanted to see some of their inheritance go to their grandchildren while they were still there to enjoy it. It is your house and your money. If you would like to help your daughter by giving her the cash for the down payment on her own home, you certainly may.

Why the HECM Is Still the #1 Reverse Mortgage in 2025

Insured by the Federal Housing Administration
Provides tax-free cash without monthly mortgage payments
Lets you stay in your home for life
Comes with borrower protections you can’t get elsewhere
Flexible payout options: lump sum, credit line, or monthly income
Ideal for homeowners age 62+ who want peace of mind in retirement

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-star rating! Call (800) 565-1722 or click here for your free quote —simple, trusted, 100% secure!

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Have a Question About Reverse Mortgages?

Look no further. Michael G. Branson, our CEO, brings a wealth of knowledge directly to you. With a robust 45-year tenure in mortgage banking and 20 years dedicated solely to reverse mortgages, he's the expert you want on your side.

Post your question in the comments below and anticipate a personalized response from Mr. Branson himself, typically within one business day. He's here to illuminate all angles of reverse mortgages, ensuring you're equipped with the knowledge to make informed decisions. Take this opportunity to gain insights from a seasoned professional.

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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