FHA Home Equity Conversion Mortgage (HECM)
A reverse mortgage lets homeowners 62 and older convert a portion of their home equity into tax-free cash — without selling, without making monthly mortgage payments, and without giving up ownership.
By Jeff Shin, NMLS #1041652 · Barrett Financial · Published March 16, 2026
The Basics
A reverse mortgage is a home loan backed by the federal government through HUD and FHA — officially called a HECM (Home Equity Conversion Mortgage). It was created by the Housing Act of 1987 specifically to help older Americans access the equity they've spent decades building, without having to sell their home or take on a traditional monthly payment.
Here's the key difference from a regular mortgage: instead of you paying the lender every month, the lender pays you (or gives you access to a line of credit). The loan balance grows over time and is repaid when the home is sold, you move out permanently, or you pass away.
A HECM is a non-recourse loan — meaning you (or your heirs) can never owe more than the home is worth at repayment time, even if the loan balance grew beyond the home's value. The FHA insurance covers any difference. Your other assets — savings, investments, property — are completely protected.
Your Principal Limit is the maximum amount you can borrow. It's calculated based on your age, your home's value, and current interest rates. The older you are and the more equity you have, the higher it is.
Do I Qualify?
A reverse mortgage has straightforward requirements. If you check these boxes, you're likely a strong candidate.
Eligible Property Types
All properties must meet FHA minimum property standards. Condominiums must be on the FHA-approved condo list.
Free Estimate
Enter your home's value, what you owe, and your age to get a ballpark estimate of your proceeds. This is educational — not a quote or a commitment.
Based on your inputs, here's a rough breakdown:
This calculator provides a rough educational estimate using HUD Principal Limit Factor (PLF) approximations. Actual proceeds depend on the current expected interest rate, a formal appraisal, lender fees, and your specific financial assessment. This is not a loan offer or commitment to lend. Speak with a licensed reverse mortgage professional before making any decisions.
How You Get Paid
One of the most underrated features of a reverse mortgage is flexibility. You're not locked into one payment structure.
Receive equal monthly payments for as long as you live in your home as your primary residence. Payments never stop, even if your loan balance exceeds your home's value.
Receive equal monthly payments for a set number of months you choose. Higher payments than Tenure, but they stop after the term ends — even if you're still in the home.
Access funds on your schedule — take nothing now and draw when you have a medical expense, home repair, or opportunity. Unused credit actually grows over time at the loan's interest rate.
Combine monthly payments for life with a reserve line of credit for emergencies. The best of both worlds for most borrowers.
Monthly payments for a set number of months, plus a reserve credit line. Good if you need income now and want a safety net later.
The Line of Credit growth feature — where unused credit grows over time — is one of the most powerful and least understood advantages of a reverse mortgage. Ask Jeff to explain the math on your specific scenario.
Full Transparency
Reverse mortgages have real costs. Here's exactly what they are — no surprises at the closing table.
| Fee | Amount | Plain English |
|---|---|---|
| Initial MIP Mortgage Insurance Premium |
2% of Max Claim | Paid upfront to FHA. On a $400k home, that's $8,000. This is what funds the non-recourse protection — so neither you nor your heirs owe more than the home is worth. |
| Annual MIP Ongoing Insurance |
0.5% of balance/year | Added to your loan balance annually. You never write a check for this — it accrues into the loan. |
| Origination Fee Lender Compensation |
Up to $6,000 (regulated) | HUD caps this fee. The exact amount depends on your home's value and the lender. This is negotiable in some cases. |
| Servicing Fee Monthly Admin |
$30–$35/month | Covers the cost of managing your account, sending statements, and processing any payments. Added to the loan balance monthly. |
| Third-Party Fees Title, Appraisal, etc. |
$2,000–$4,000 | Appraisal, title search, title insurance, attorney fees. Similar to a traditional mortgage. These go to third parties, not the lender. |
Most reverse mortgage costs can be financed into the loan — meaning you don't need to bring cash to closing. Your net proceeds are simply reduced by the fees rather than paid out of pocket.
The Question Everyone Has
This is the most important question families ask. The answer is more flexible than most people expect.
When a maturity event occurs — you pass away, sell the home, move out for more than 12 consecutive months (including long-term healthcare), fail to pay taxes or insurance, or fail to maintain the property — the loan becomes due. Your heirs have 6 to 12 months to decide what to do.
Heirs can refinance or pay off the full loan balance and keep the property. If the home has appreciated, they keep all the upside above what's owed.
If the loan balance exceeds the home's value, heirs only need to pay 95% of the current appraised value — not the full loan balance. FHA insurance covers the rest.
Heirs sell the home, pay off the loan balance, and keep whatever equity remains. If the home has grown in value, they profit.
If the loan balance exceeds the home's value, heirs can simply hand the keys to the lender and walk away. No personal liability. No deficiency judgment. The non-recourse protection means your other assets are safe.
Non-borrowing spouses have special protections even if they're under 62. If your spouse is younger, this matters — ask Jeff specifically about the eligible non-borrowing spouse rules before moving forward.
Common Concerns
Straight answers — no sales pitch.
No — as long as you meet three obligations: pay your property taxes, maintain homeowner's insurance, and keep the home in reasonable condition. As long as you do those things and live in the home as your primary residence, you cannot be forced out. The lender cannot foreclose simply because the loan balance grows.
No. This is one of the most important protections of a federally-insured HECM. Because it's a non-recourse loan, neither you nor your heirs can owe more than the home is worth at repayment time — even if the loan balance grew larger than the home's value. The FHA insurance fund covers any shortfall.
Yes. You retain full ownership and title to your home throughout the life of the loan. The reverse mortgage is a lien against the property — like any mortgage — but you own it. You can sell it, renovate it, or leave it to your heirs.
Generally, no. Reverse mortgage proceeds are considered loan advances, not income — so they are typically not subject to income tax. However, they may affect your eligibility for need-based programs like Medicaid or Supplemental Security Income (SSI). Consult a tax advisor for your specific situation.
Younger spouses can be designated as an Eligible Non-Borrowing Spouse. If you pass away or move to a care facility, your spouse can stay in the home without the loan becoming due — as long as they continue to meet the ongoing obligations (taxes, insurance, maintenance). However, they cannot receive additional draws from a line of credit. This is an important distinction — bring it up at the start of any conversation.
Yes — it's required by law before you can proceed with a HECM application. But it's genuinely useful. A HUD-approved counselor (completely independent from your lender) walks you through the program, your obligations, alternatives, and answers your family's questions. Sessions typically run 60–90 minutes and cost $125–$175. Many families find it reassuring rather than burdensome.
No Pressure. No Obligation.
A reverse mortgage is a significant decision. Jeff will walk you through the math, the costs, and whether it actually makes sense for your family — honestly.
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