The Home Equity Conversion Mortgage (HECM) is the only reverse mortgage insured by the federal government. HECM loans are insured by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD).
The FHA tells HECM lenders how much they can lend you, based on your age and your home's value. The HECM program limits your loan costs, and the FHA guarantees that lenders will meet their obligations.
HECMs Versus Other Reverses
HECM loans generally provide the largest loan advances of any reverse mortgage. HECMs also give you the most choices in how the loan is paid to you, and you can use the money for any purpose.
Although they can be costly, HECMs are generally less expensive than privately-insured reverse mortgages. Other reverse mortgages may have smaller fees, but they generally have higher interest rates. On the whole, HECMs are likely to cost less in most cases. A notable exception may be the reverse mortgages now being developed by some credit unions.
The only reverse mortgages that always cost the least are ones offered by state or local governments. These loans typically must be used for one specific purpose only, for example, to repair your home, or pay your property taxes. They also generally are available only to homeowners with low to moderate incomes.
Who is Eligible
HECM loans are available in all 50 states, the District of Columbia, and Puerto Rico. To be eligible for a HECM loan:
• you, and any other current owners of your home, must be aged 62 or over, and live in your home as a principal residence;
• your home must be a single-family residence in a 1- to 4-unit dwelling, a condominium, or part of a planned unit development (PUD). Some manufactured homes are eligible, but most mobile homes are not; cooperatives are expected to become eligible by the end of 2008.
• your home must meet HUD's minimum property standards, but you can use the HECM to pay for repairs that may be required; and
• you must discuss the program with a counselor from a HUD-approved counseling agency.
Repaying a HECM
As with most reverse mortgages, you must repay a HECM loan in full when the last surviving borrower dies or sells the home. It also may become due if:
• you allow the property to deteriorate, except for reasonable wear and tear, and you fail to correct the problem; or
• all borrowers permanently move to a new principal residence; or
• the last surviving borrower fails to live in the home for 12 months in a row because of physical or mental illness; or
• you fail to pay property taxes or hazard insurance, or violate any other borrower obligation.
If your rising HECM loan balance ever grows to equal the value of your home, then your total debt is limited by the value of your home if the home is sold to repay the loan. But if the home is not sold and the loan is repaid with other funds, then you or your estate would owe the full loan balance–even if it is greater than your home’s value. Your heirs would not have any personal liability for repaying the loan.
AARP does not endorse any reverse mortgage lender or product.