What is a Home Equity Conversion Mortgage?

The main type of reverse mortgage that people get today is the Home Equity Conversion Mortgage, backed by the US Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA).

These reverse mortgages are available to people age 62 or older who are interested in leveraging their home equity to gain liquidity, either in the form of a lump sum, monthly payments, or other arrangement. A Home Equity Conversion Mortgage (HECM) is a reverse mortgage available to homeowners age 62 or older, insured by the Federal Housing Administration (FHA).

It allows homeowners to receive an income stream or lump sum payment as a loan based on their home equity, but allows them to remain in the house and not make further payments on their home if they do not want to.

Repayment of the loan must be made if the borrow or joint borrowers die or sell the house. Effectively it allows elderly Americans to sell their homes without moving out and to simply forfeit the right to pass their home on to any beneficiaries.

The HECM works for homes with values up to $625.