My phone rang at 7 AM last Tuesday. It was Janet, a 68-year-old client, practically in tears. “I just got off the phone with a reverse mortgage salesman,” she said. “He kept talking about something called a ‘HECM’ and made it sound like free money. Please tell me what’s really going on.”
Twenty minutes later, we were sitting at her kitchen table with a pot of coffee, sorting through the reality of Home Equity Conversion Mortgages—the most common type of reverse mortgage in America.
Here’s the thing about HECMs that drives me nuts: They’re simultaneously the most regulated and most misunderstood financial product I deal with. After fifteen years helping families navigate these waters, I’ve seen them save retirements and destroy family relationships—sometimes in the same week.
So let’s cut through the marketing nonsense and talk about HECM reverse mortgages like real people. No jargon, no sales pitch—just the truth about whether this might work for you.
What Makes a HECM Different from Other Reverse Mortgages?
First things first—HECM stands for Home Equity Conversion Mortgage. It’s not just any reverse mortgage; it’s THE reverse mortgage for most people.
About 95% of reverse mortgages are HECMs. Why? Because they’re insured by the Federal Housing Administration (FHA), which means they come with certain protections you won’t find elsewhere.
Think of it this way: HECMs are like the “standard” version of reverse mortgages. Everything else is either a specialty product for expensive homes or a state-specific program.
The government backing means:
- You can never owe more than your home is worth
- Your heirs are protected from owing money beyond the home’s value
- Standardized terms and protections across all lenders
- Maximum borrowing limits set by federal guidelines
My client Bob put it perfectly: “It’s like buying insurance when you’re borrowing money. Costs a bit more upfront, but I sleep better knowing the government has my back.”
But here’s what Bob didn’t say—that insurance mostly protects the lender. You still need to understand what you’re signing up for.
HECM Eligibility: The Real Requirements
The TV ads make it sound like anyone over 62 with a house can get a HECM. That’s… optimistic.
Age Requirements That Actually Matter
You must be at least 62. If you’re married, both spouses don’t need to be 62, but this creates complications that’ll make your head spin.
Here’s what happened to my clients Tom and Linda. Tom was 65, Linda was 58. They qualified for the HECM based on Tom’s age, but Linda became what’s called a “non-borrowing spouse.” When Tom dies, Linda can stay in the house—but only if she meets a bunch of requirements the lender explained in about thirty seconds during closing.
Primary Residence Rule (They Actually Check)
The home must be your primary residence where you live for the majority of the year. No vacation homes, no rental properties, no “I spend winters in Florida” situations.
The government isn’t messing around here. They verify this through tax records, utility bills, voter registration—the works.
Financial Assessment (The Part That Trips People Up)
Since 2015, HECM lenders must verify you can handle ongoing expenses like property taxes and insurance. This isn’t as strict as qualifying for a regular mortgage, but it’s not automatic either.
I watched my neighbor Steve get rejected despite owning his $450,000 home outright. His crime? Being behind on property taxes for eighteen months. “But I need the money to catch up on taxes!” he protested.
Catch-22, right? You need money to qualify for money.
Property Requirements That Surprise People
Most single-family homes qualify easily. Condos need FHA approval—the approved list changed substantially in 2025, eliminating some buildings that previously qualified.
Manufactured homes face strict requirements about foundations and HUD codes. Many don’t qualify, despite being worth significant money.
Co-ops? Forget it. Mobile homes? Not happening. That tiny house you’re so proud of? Probably not.
Existing Mortgage Complications
If you still owe money on your current mortgage, the HECM must pay it off first. This can dramatically reduce your available cash.
Sarah, a 71-year-old teacher, qualified for $280,000 based on her home’s value. But she still owed $180,000 on her existing mortgage. After paying that off and covering fees, she only netted about $75,000 in available funds. Not exactly the windfall she expected.
How Much Can You Actually Borrow?
The amount you can borrow through a HECM depends on several factors, and the math gets complicated fast.
The Principal Limit Factor
This is the percentage of your home’s value you can borrow, based on:
- Your age (older = higher percentage)
- Current interest rates (lower rates = higher borrowing capacity)
- Your home’s appraised value (up to $1,089,300 in 2025)
At 62, you might access 40-50% of your home’s value. By 75, that could increase to 60-65%. The exact percentage changes with interest rates and gets updated annually.
Real-World Examples
Let me show you how this works with actual numbers from recent clients:
Case 1: Martha, age 72
- Home value: $400,000
- Principal limit factor: 58%
- Gross proceeds: $232,000
- Less closing costs: $18,000
- Net available: $214,000
Case 2: Robert, age 67
- Home value: $600,000
- Principal limit factor: 52%
- Gross proceeds: $312,000
- Existing mortgage payoff: $150,000
- Less closing costs: $22,000
- Net available: $140,000
Notice how Robert’s existing mortgage dramatically reduced his net proceeds despite having a more valuable home.
The First-Year Limit
Here’s a rule that confuses everyone: In most cases, you can only access 60% of your available funds in the first year. This prevents people from taking everything upfront and potentially squandering it.
There are exceptions if you’re using the money to pay off existing mortgages or certain other debts, but the rule exists to protect borrowers from themselves.
HECM Payout Options: Getting Your Money
Unlike regular loans where you get one big check, HECMs offer flexibility in how you receive funds:
Lump Sum (The “All-at-Once” Option)
You get everything at closing (subject to first-year limits). This makes sense if you have specific large expenses like paying off an existing mortgage or major home repairs.
The downside? You’re paying interest on the entire amount from day one, whether you need it all or not.
Monthly Payments
Tenure payments provide equal monthly amounts for as long as you live in the home. These never stop, even if you live to 100 and the payments exceed your home’s value.
Term payments give you larger monthly amounts for a specific period you choose—maybe 10 or 15 years.
My client Frank chose tenure payments of $1,650 monthly. “It’s like my house is paying me a pension,” he jokes. Three years later, he still thinks it was brilliant.
Line of Credit (My Favorite Option)
This is where HECMs get interesting. You can access funds as needed, and the unused portion grows over time at the same rate as your loan’s interest.
Let me explain why this is so powerful: Say you qualify for $250,000 but only need $50,000 initially. That remaining $200,000 grows at your loan’s interest rate—currently around 6-7%. This growth happens regardless of what your home’s value does.
Your house could lose value, the market could crash, but your available credit line keeps growing. It’s like having a financial backstop that gets stronger over time.
Combination Approaches
You can mix and match these options. Take some cash upfront, set up monthly payments, and keep a credit line for emergencies.
Patricia used this strategy perfectly: $40,000 upfront to eliminate credit card debt, $1,200 monthly payments to supplement Social Security, and a $100,000 growing credit line for healthcare emergencies.
The True Cost of HECMs
Let’s talk about the elephant in the room—these things aren’t cheap.
Upfront Costs That’ll Make You Wince
Initial Mortgage Insurance Premium (MIP): 2% of your home’s appraised value, capped at the 2025 HECM limit of $1,089,300.
For a $400,000 home, that’s $8,000 right off the top.
Origination Fee: The greater of $2,500 or 2% of the first $200,000 of your home’s value, plus 1% of the amount above $200,000. Maximum fee is $6,000.
Third-Party Costs: Appraisal, title insurance, recording fees, inspections—typically $2,000-4,000.
Counseling Fee: The mandatory HUD counseling session costs $125-175.
For that $400,000 house, you’re looking at roughly $15,000 in upfront costs. And here’s the kicker—these are usually rolled into your loan, meaning you pay interest on them for years.
Ongoing Costs That Keep Adding Up
Interest: As of mid-2025, HECM rates range from 6.5-7.5% for fixed rates. Adjustable rates start lower but can increase over time.
Annual MIP: 0.5% of your outstanding loan balance, charged every year.
Servicing Fees: Most lenders don’t charge these anymore, but some still do—typically $30-35 monthly.
The Compound Interest Reality
Here’s where the math gets scary. Let’s say you borrow $200,000 at 6.5% interest. After 10 years, your loan balance could easily be $350,000 or more—even if you never borrowed another penny.
“Wait,” you’re thinking. “How did $200,000 become $350,000?”
Compound interest. It’s like that friend who eats half your pizza when you’re not looking, except it happens every month for years.
When HECMs Make Perfect Sense
Despite the costs, HECMs can be financial lifelines in the right situations:
Eliminating Mortgage Payments
If you’re struggling with existing mortgage payments in retirement, a HECM can eliminate that burden immediately.
Dorothy, 69, was paying $1,875 monthly on a mortgage with seven years remaining. Using a HECM to pay it off freed up nearly $1,900 monthly for living expenses. “Best financial decision I ever made,” she told me last month.
Aging in Place Strategy
For people emotionally attached to their homes and neighborhoods, HECMs can provide the means to stay put.
This is especially valuable for funding home modifications—stair lifts, bathroom grab bars, wheelchair ramps—that make continued independence possible as you age.
Healthcare Cost Protection
Healthcare expenses in retirement average over $300,000 per couple. HECMs can help cover these costs without depleting investment accounts during market downturns.
Social Security Optimization
Here’s a strategy some financial planners love: Use HECM proceeds to delay taking Social Security until age 70. Every year you wait increases your benefit by about 8%.
The math works like this: If delaying Social Security from 62 to 70 increases your monthly benefit from $1,500 to $2,640, that extra $1,140 monthly for the rest of your life can easily justify HECM costs—if you live long enough.
Portfolio Protection During Market Crashes
When stock markets crash, using HECM funds instead of selling depreciated investments can protect your portfolio’s long-term growth potential. Financial planners call this a “buffer strategy.”
When HECMs Are Terrible Ideas
Sometimes HECMs are financial disasters waiting to happen:
Short-Term Housing Plans
If you might move within five years, HECM costs usually don’t make sense. You’d be better off with a traditional home equity loan or just selling.
Inheritance Preservation Priority
While heirs can inherit a home with a HECM, they’ll need to pay off the loan (usually by selling) to keep it. If leaving your home to children is crucial, explore alternatives.
I’ve sat through too many tearful conversations with adult children who expected to inherit the family home, only to discover there’s little or no equity remaining after the HECM is repaid.
Financial Desperation Situations
If you’re already behind on bills and considering a HECM out of desperation, be extremely careful. I’ve seen situations where this just postponed inevitable financial problems while making them exponentially worse.
When You Have Better Options
If you have substantial savings, investments, or other assets, tapping those sources first might be more cost-effective than paying HECM fees and interest.
Ongoing Cost Struggles
Remember—you’re still responsible for property taxes, insurance, and maintenance. If covering these expenses is already difficult, a HECM might eventually lead to foreclosure.
This happened to my former client Walter. Three years after getting his HECM, rising property taxes and a major foundation repair pushed him into foreclosure. At 84, he lost his home anyway.
HECM vs. Proprietary Reverse Mortgages
For homes worth more than the HECM limit ($1,089,300 in 2025), some lenders offer proprietary or “jumbo” reverse mortgages.
These aren’t government-insured and typically have:
- Higher borrowing limits
- Different fee structures
- Fewer consumer protections
- More flexible qualification requirements
My client William has a $1.8 million home in San Francisco. The HECM would only let him borrow against $1,089,300 of that value. A proprietary reverse mortgage allowed him to access equity based on the full value—but at higher costs and with less protection.
The Application Process: What Really Happens
If you decide to move forward with a HECM, here’s the real timeline:
Initial Consultation (Free, But Not Really)
Most lenders offer “free” consultations. They’re free because they hope to earn thousands in fees later. Come prepared with questions and don’t feel pressured to decide immediately.
HUD Counseling (Mandatory, $125-175)
You must complete counseling with a HUD-approved agency. This takes about 90 minutes and covers program details, alternatives, and implications.
My experience? Some counselors are thorough and helpful. Others rush through a checklist to satisfy the legal requirement. Ask questions and take notes.
Application and Financial Assessment
You’ll provide income verification, tax returns, bank statements, and information about existing mortgages. The lender assesses your ability to maintain the property long-term.
Home Appraisal ($400-600)
An FHA-approved appraiser determines your home’s value. This directly impacts your borrowing capacity, so property condition matters.
Underwriting (2-4 weeks)
The lender reviews everything and makes a final decision. They might request additional documentation or explanations.
Closing
Similar to buying a house—lots of paperwork, signatures, and explanations. You have three business days after closing to cancel without penalty (called the “right of rescission”).
Funds Distribution
Depending on your payment option, funds become available after closing and any rescission period.
What Happens When It’s Time to Repay?
Eventually, all HECMs must be repaid. This happens when:
- The last borrower dies
- All borrowers permanently move out (nursing home for 12+ consecutive months)
- The home is sold
- You fail to maintain property taxes, insurance, or property condition
Options for Heirs
When the loan becomes due, heirs typically have six months to decide (with possible extensions). They can:
- Refinance and keep the house (if they qualify for a new mortgage)
- Sell the house to repay the loan, keeping any remaining equity
- Deed the house to the lender (called “deed in lieu of foreclosure”)
- Purchase the house for 95% of current appraised value or the loan balance, whichever is less
The Non-Recourse Protection
Here’s the most important protection HECMs provide: You (or your heirs) can never owe more than the home is worth when the loan becomes due.
If your loan balance grows to $400,000 but your house is only worth $300,000, the FHA insurance covers the difference. Your heirs don’t owe that extra $100,000.
This protection is worth the mortgage insurance premiums you pay throughout the loan.
Recent Changes for 2025
The HECM program continues evolving:
- Lending limit increased to $1,089,300 (up from $1,089,300 in 2024)
- Streamlined documentation for certain refinance situations
- Enhanced spouse protections for younger non-borrowing spouses
- Updated financial assessment guidelines that consider more income sources
Making the Right Decision
After helping hundreds of families navigate HECM decisions, here’s my framework:
- Run detailed financial projections with and without a HECM
- Consider your emotional attachment to the home and inheritance plans
- Evaluate your health and longevity honestly
- Discuss implications with family members who might be affected
- Get independent advice from someone who doesn’t sell these products
- Compare offers from multiple lenders (terms can vary significantly)
- Trust your gut – if something feels wrong, step back
The Bottom Line on HECMs
HECMs aren’t magic solutions, but they’re not scams either. They’re expensive financial tools that work brilliantly for some people and terribly for others.
The ideal HECM candidate:
- Plans to stay in their home for many years
- Has substantial equity but limited income
- Understands and accepts the true costs
- Has thoroughly considered alternatives
- Isn’t trying to preserve maximum inheritance
My client Eleanor summarized it perfectly after living with her HECM for four years: “I spent months worrying about making the perfect choice. Turns out there wasn’t a perfect choice—just the best choice for my situation.”
Before you sign anything, remember that your home isn’t just your biggest asset—it’s where your memories live. Treat decisions about it with the care and consideration they deserve.