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.

What Is a HECM? 2025 Home Equity Conversion Mortgage Guide

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.

July 13, 2025

Michael G. Branson Edited by

Cliff Auerswald

12 comments

What Is a HECM (Home Equity Conversion Mortgage)?

A Home Equity Conversion Mortgage (HECM) is the FHA-insured reverse mortgage program for homeowners age 62 and older. It lets you convert part of your home equity into tax-free cash without giving up ownership or making required monthly mortgage payments. You must still cover property taxes, insurance, and upkeep, and the loan is repaid when the home is sold, the last borrower moves out, or passes away.

In this updated 2025 guide, you’ll learn:

How a HECM works and who qualifies
Current lending limits and eligibility requirements
Costs, fees, and FHA protections
Pros and cons compared to HELOCs and proprietary reverse mortgages
FAQs and common misconceptions

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)?

• HECM at a Glance (2025)

• How a HECM Reverse Mortgage Works in 2025

• 2025 HECM Loan Requirements and Eligibility

• HECM Lending Limits and Benefits by Age (2025)

• HECM Costs and Fees in 2025

• Why FHA Insurance Matters for the HECM

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

• Why Older Homeowners Choose HECM in 2025

• Frequently Asked Questions

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

HECM at a Glance (2025)

What it is: An FHA-insured reverse mortgage for homeowners age 62+
Payments: No required monthly mortgage payments; repay when you sell, move out, or pass away (must still pay taxes, insurance, and upkeep)
2025 lending limit: $1,209,750 nationwide (HUD ML 2024-22)
How funds work: Tax-free cash available as a lump sum, line of credit, monthly payments, or a combination
Protections: Non-recourse loan — you and your heirs never owe more than the home’s value
New rule (2025): Non-permanent residents are ineligible for HECM case numbers after May 25, 2025 (HUD ML 2025-09)

How a HECM Reverse Mortgage Works in 2025

Traditional mortgages require monthly payments to build equity. A HECM flips this: you receive payments and have no required monthly mortgage payments as long as you live in the home as your primary residence, maintain the property, and stay current on property taxes, insurance, and HOA fees (if applicable).

The amount you can borrow—the principal limit—depends on your age (or the youngest borrower’s age), current interest rates, your home’s appraised value, and the 2025 maximum claim amount (MCA) of $1,209,750.

Example: a 76-year-old homeowner with a $600,000 home might access around 45% of equity (~$270,000), adjusted for rates and fees (per HUD guidelines).

You can receive funds as:

Lump Sum: Fixed-rate, useful to pay off an existing mortgage or large expense.
Line of Credit: Draw as needed; unused credit grows over time based on your loan terms.
Monthly Payments: Tenure (for life) or term (fixed period) to supplement income.
Combination: Mix options for flexibility.

You continue to own and live in your home. When the loan becomes due (e.g., upon death or sale), it’s typically repaid from sale proceeds. If the balance exceeds the sale price, FHA insurance covers the shortfall—no debt to heirs.

In 2025, line-of-credit growth remains a standout feature, which can help hedge against inflation uncertainty.

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

2024 vs. 2025 HECM Changes	2024	2025
Maximum Claim Amount	$1,149,825	$1,209,750 (+5%)
Residency Rules	Allowed non-permanent	Excluded after May 25

2025 HECM Loan Requirements and Eligibility

To qualify in 2025, you must meet HUD-mandated criteria:

Be 62+ (or have a spouse who is, with protections for non-borrowing spouses).
Occupy the home as your primary residence.
Own the home outright or have a low enough balance to pay off with HECM proceeds.
Complete HUD-approved counseling.
Pass a financial assessment showing the ability to cover taxes, insurance, and maintenance.
Have no delinquent federal debt.
Be a U.S. citizen, permanent resident, or eligible non-citizen (non-permanent residents ineligible for case numbers after May 25, 2025, per HUD updates).

Eligible property types include:

Single-family homes (1–4 units, with owner occupancy).
FHA-approved condominiums.
Certain manufactured homes meet 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	38.2%	$1,209,750
63	38.9%	$1,209,750
64	39.6%	$1,209,750
65	40.3%	$1,209,750
66	41.1%	$1,209,750
67	41.9%	$1,209,750
68	42.6%	$1,209,750
69	43.4%	$1,209,750
70	43.9%	$1,209,750
71	43.9%	$1,209,750
72	44.1%	$1,209,750
73	44.9%	$1,209,750
74	45.8%	$1,209,750
75	46.7%	$1,209,750
76	47.3%	$1,209,750
77	48.3%	$1,209,750
78	49.4%	$1,209,750
79	49.9%	$1,209,750
80	51%	$1,209,750

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

Compared to 2024, the 2025 MCA increase to $1,209,750 is nationwide (including high-cost areas like Hawaii and Alaska), potentially unlocking more funds for higher-value homes.

HECM Costs and Fees in 2025

HECMs involve upfront and ongoing costs, most of which can be financed into the loan. These fees support FHA insurance that protects borrowers and program stability.

Upfront FHA MIP: 2% of MCA (e.g., $24,195 at the $1,209,750 max).
Annual MIP: 0.5% of outstanding balance.
Closing Costs: Origination (capped at $6,000), appraisal, title, and standard fees—often ~1–2% of the loan amount.
Servicing Fees: Up to $35/month, if applicable.

All costs are disclosed in the Total Annual Loan Cost (TALC). With higher limits in 2025, some fees scale, but non-recourse protection helps preserve long-term value.

HECMs are non-recourse loans: neither you nor your heirs can ever owe more than the home is worth.

Why FHA Insurance Matters for the HECM

FHA insurance sets HECM apart from proprietary reverse mortgages or HELOCs. It guarantees:

Your payments continue even if the lender has issues.
Non-recourse protection—no personal liability beyond the home’s value.
Flexible repayment: prepay anytime without penalty.
Program stability amid 2025’s economic shifts.

This insurance, funded by MIP, provides peace of mind—making HECM the safest reverse mortgage option (see the CFPB overview).

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 2025:

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 2025

Eliminate required monthly mortgage payments
Supplement retirement income (pensions, Social Security)
Pay for healthcare, in-home care, or accessibility upgrades
Finance home improvements
Create a growing line of credit as a retirement safety net
Purchase a new home through 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 2025

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.

America's #1 Rated Reverse Lender Celebrating 20 Years of Excellence.

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

See How a HECM Works for You

ARLO™

Let’s find out how a reverse mortgage can work for you. Over 500,000 homeowners nationwide - and 100 in your area are already enjoying more financial security in retirement!

Great! It looks like your home value estimate is about

Please provide your estimated home value

The minimum qualifying age for a reverse mortgage is 55

I’m ARLO, here with my best product recommendations and expert tips tailored for you. Just share your email and phone, and I’ll send your personalized analysis securely - 100% free, with no obligation!