Reverse Mortgages
A careful, factual guide to the FHA-insured Home Equity Conversion Mortgage: what it is, who it is for, what it costs, and what it requires of you.
Talk it through with Douglas Wilkerson, Mortgage Broker / Branch Manager, before you decide.
A Home Equity Conversion Mortgage (HECM) is a loan insured by the Federal Housing Administration (FHA) that lets homeowners age 62 and older convert part of their home equity into cash. Unlike a traditional mortgage, a HECM generally requires no monthly mortgage payment. Instead, interest and fees are added to the loan balance over time.
You keep the title to your home. The loan balance becomes due when the last borrower moves out of the home, sells it, or passes away. At that point, the home is typically sold or refinanced to repay the balance, and any remaining equity belongs to you or your heirs.
Because no monthly payment is required, a HECM can help retirees supplement income, pay off an existing mortgage, cover medical costs, or fund home repairs. It is not free money: the balance grows over time, which reduces the equity left in the home.
HECM eligibility is set by federal rules. In general, you must:
The amount you can borrow depends on your age, the value of your home, current interest rates, and the FHA lending limit. Older borrowers and lower rates generally mean more available proceeds.
Fact: You keep the title and ownership of your home, just as with any mortgage. The lender holds a lien, not ownership.
Fact: A HECM is a non-recourse loan. You and your heirs will never owe more than the home is worth when the loan is repaid, and any equity above the balance belongs to you or your heirs.
Fact: There is no monthly mortgage payment to qualify for, but a financial assessment reviews your credit history and your ability to pay taxes, insurance, and upkeep. Some borrowers may be required to set aside funds for those costs.
A HECM has closing costs similar to other mortgages, plus FHA mortgage insurance: an upfront premium and an annual premium. Interest accrues on the balance, including on any financed fees, so the amount owed grows over time. Your exact costs depend on the loan terms and the value of your home.
You must continue to pay property taxes and homeowner's insurance, maintain the home in good condition, and meet any homeowner association obligations. Failing to meet these obligations can put the loan into default and, ultimately, lead to foreclosure.
HECM borrowers can choose how to take their proceeds, and in many cases can change the payment plan later:
Which option fits depends on why you are borrowing. A lump sum suits a one-time need; a line of credit suits ongoing, unpredictable expenses.
A HECM can be a sound tool when the goal is to stay in your home and supplement retirement income, and when you understand that it reduces the equity you leave behind. It is a poor fit if you plan to move soon, want to preserve the full value of the home for heirs, or cannot reliably cover taxes, insurance, and maintenance.
Before applying, federal rules require counseling with a HUD-approved counselor who has no connection to the lender. Bring your family into the conversation. A reverse mortgage affects your estate, and the decision is easier when everyone understands the trade-offs.
A HECM is the most common type of reverse mortgage in the United States. It is insured by the FHA and available to homeowners 62 and older. It converts home equity into loan proceeds without requiring monthly mortgage payments.
Yes. You retain the title to your home. The lender places a lien on the property, as with any mortgage, and the loan is repaid when you move out, sell, or pass away.
The loan balance becomes due. Your heirs generally have the option to repay the balance and keep the home, or sell the home to repay it. Because the loan is non-recourse, the amount owed can never exceed the home's value at repayment.
The available amount depends on the youngest borrower's age, the appraised value of the home, current interest rates, and the FHA lending limit. A counselor or loan officer can give you an estimate based on your situation.
Yes. Before you can apply, you must complete a counseling session with an independent, HUD-approved counselor. The session covers how a HECM works, its costs, and alternatives you may want to consider.
Yes, in specific circumstances. If you fail to pay property taxes or homeowner's insurance, fail to maintain the home, or no longer live in it as your primary residence, the loan can go into default and foreclosure is possible. Meeting your obligations keeps the loan in good standing.
A reverse mortgage is a long-term decision. Get clear, pressure-free answers before you commit to anything.
Equal Housing Opportunity. Mortgage services are provided by Douglas Wilkerson, Branch Manager and Mortgage Broker with Edge Home Finance Corporation. Loan programs, rates, eligibility, underwriting guidelines and availability are subject to change. All applications are subject to credit review, verification, property eligibility, applicable underwriting requirements and final approval. This website does not constitute a commitment to lend or a guarantee of financing.