What Is a Home Equity Conversion Mortgage (HECM)?
A Home Equity Conversion Mortgage (HECM) is the most common and most regulated type of reverse mortgage in the United States—and, importantly, the only type insured by the federal government through the U.S. Department of Housing and Urban Development (“HUD”).
A HECM lets homeowners age 62 or older convert a portion of their home equity into cash without making monthly mortgage payments. Instead of paying a lender, the loan balance grows over time as interest and fees accrue. You maintain ownership of your home as long as you continue to live in it as your primary residence and stay current on property taxes, homeowners insurance, and maintenance.
How HECM Funds Can Be Received
When you take out a HECM, you can choose how you’d like to receive your cash. Each option serves different goals:
- Line of Credit
A flexible option where funds remain available and unused amounts grow over time. You draw only what you need—similar to an emergency fund against your home equity.
- Tenure Payments
You receive fixed monthly payments for as long as you live in the home. This can act like guaranteed retirement income.
- Term Payments
You get fixed monthly payments for a set number of years—useful if you know you’ll need extra cash over a defined period (e.g., until Social Security starts).
- Modified Options
Combinations of a line of credit plus fixed payments for either a term or for life.
- Lump Sum
All available proceeds at once—most common with a HECM for Purchase (buy a new home and fund it with the HECM).
How and When a HECM Is Repaid
Unlike traditional mortgages, you don’t make monthly payments on a HECM. Instead, the loan becomes due and payable when a “maturity event” occurs—typically one of these:
- The borrower sells the home.
- The borrower passes away.
- The borrower moves out permanently (e.g., into long-term care).
- The borrower fails to maintain the home, or fails to pay property taxes/insurance.
Here’s how repayment works in common situations:
Selling Your Home
When you sell, the HECM must be repaid with sale proceeds. If the sale price is more than the loan balance, the leftover funds go to you or your heirs. If it’s less, the HECM’s federal mortgage insurance covers the difference—meaning you or your estate never owe more than the home’s value (a key protection of HECM loans).
Death of the Borrower
Heirs have options within a timeframe (often 6–12 months) to:
- Sell the home and repay the loan from proceeds,
- Pay off the loan and keep the home, or
- Transfer ownership and assume the mortgage obligation if they qualify. Because HECMs are non-recourse loans, heirs and estates are protected—they won’t be responsible for any shortfall beyond the home’s value.
Current HECM Interest Rates (2026)
Interest rates on HECMs vary based on:
- Fixed vs. adjustable rates
- Market conditions
- Lender offerings
Here’s a snapshot of typical HECM rates recently reported:
Loan Type | Approximate Interest Range |
HECM Fixed Rate | ~7.5 % – 7.9 % |
HECM Adjustable Rate | ~6.2 % – 7.5 % |
These ranges reflect indicative rates and may change over time or vary by lender, borrower profile, and specific product. Always check current offerings before making decisions.
Interest accrues over time on the outstanding balance and is added to the total loan amount, so the balance grows the longer the loan remains outstanding.
Who Can Benefit from a HECM?
HECMs are often used to:
- Supplement retirement income without selling the home
- Create a financial cushion for unexpected expenses
- Delay tapping investment accounts or Social Security
- Cover healthcare or long-term care costs
But they’re not right for everyone. They reduce home equity over time and can affect heirs’ inheritance. Decisions about housing, taxes, insurance, and probate should all be part of the discussion.
Why Planning Matters
A HECM can be a useful component of retirement planning when integrated with your broader financial picture—including cash flow, taxes, legacy goals, and investment strategies.
At Otium Financial Planners, we help you evaluate whether a Home Equity Conversion Mortgage fits your retirement plan, compare payment and repayment options, and consider how it interacts with Social Security, Medicare costs, estate planning, and more.
A reverse mortgage shouldn’t be an impulse decision—it should be a purpose-driven part of your financial strategy. Let us help you make sure it fits your plan.