Home Equity Conversion Mortgages (HECM) Explained

A Home Equity Conversion Mortgage (HECM) is a type of reverse mortgage that allows people to access their home’s equity and take cash out for a variety of purposes. The HECM was created by Congress in 1992 and has been used by seniors since then to help them pay for expenses related to aging, such as assisted living costs or medical bills. However, this loan product can be used for almost any purpose: paying off credit card debt, buying a car or boat, making improvements on your home — even taking a vacation!

What Is a Home Equity Conversion Mortgage (HECM)?

A Home Equity Conversion Mortgage (HECM) is a federally insured reverse mortgage loan. You can use it to convert your home equity into cash or monthly payments. HECMs are ideal for seniors who want to stay in their homes but don’t have enough income to cover all their living expenses and the property’s upkeep.

The basic concept of a HECM is that it allows you to use your home equity as collateral on a reverse mortgage loan.

The amount you receive depends on how much value there is in your home, how much is owed against the home, and what type of mortgage you choose.

You can opt to receive a lump sum of cash upfront or monthly payments for the rest of your life.

What Is the Purpose of a HECM?

A Home Equity Conversion Mortgage (HECM) is a reverse mortgage that allows senior citizens to convert their home equity into cash. Seniors who have paid off their mortgages, or have paid down enough to meet equity requirements, and are living on a fixed income can use this money for whatever they want, including paying off other debts or taking vacations.

The HECM is a great option for seniors who are looking to supplement their income or pay off debt.

How Does a HECM Work?

HECMs are reverse mortgages available to seniors if they meet certain criteria. To be elegible for a HECM:

  • You must be at least 62 years old.
  • Your home must be your primary residence.
  • There must be enough equity in the home to qualify for the HECM.
  • You must be current on your property taxes, insurance, and HOA dues, if any.

HECMs are limited based on your age and the value of the home. In general, there must be at least 55% equity left after getting a HECM. If you have outstanding mortgages, they have to be paid off first, and this may limit the amount of cash available for a HECM.

Examples of How to Use HECM

In addition to paying off an existing mortgage, you can decide to use the proceeds of a reverse mortgage:

  • To pay for medical expenses: Seniors may use the proceeds from a HECM to pay for unexpected medical expenses, such as in-home care or medication costs.
  • To make home repairs: A HECM can be used to pay for necessary repairs or renovations, such as a new roof or an updated heating and cooling system.
  • To supplement retirement income: Some seniors may use a HECM to supplement their retirement income, either by receiving the proceeds as a lump sum or as monthly payments.
  • To pay off debt: A HECM can be used to pay off outstanding debt, such as credit card balances or personal loans.
  • To cover daily living expenses: Seniors may use a HECM to cover their daily living expenses, such as groceries, utilities, and transportation costs.

Proceeds from a HECM can be used for any purpose, and it’s up to the borrower to decide how they want to use the proceeds.

Benefits of HECM for senior citizens

  • Home Equity Conversion Mortgages (HECMs) are the best solution for seniors who want to stay in their homes as they get older and still remain independent. This can provide them with a more satisfying lifestyle than they would have if they had to move, which can be emotionally and physically difficult.
  • HECMs also let seniors age in place, meaning they don’t have to leave their community or sell their house when it becomes too financially difficult for them to continue living there. A HECM allows them to remain close with family members, friends, neighbors, and other people who know them well.
  • HECMs allow you to have a steady income stream for years without moving out of your home. Seniors living on a fixed income who need money to pay for medical bills, medications, food, and shelter, a HECM mortgage can help them ensure that those needs are met.
  • The income from a reverse mortgage is tax-free. This can be a huge benefit to seniors who are living on a fixed income. You can also use the money from your reverse mortgage to pay off existing debts, such as credit cards or medical bills. This will help you eliminate debt and save money on interest payments.

What Are the Risks and Limitations of a HECM?

There are several risks and limitations to be aware of when considering a Home Equity Conversion Mortgage (HECM).

  • The first limitation is usually not having enough equity. HECMs typically require at least 55% equity to be available after getting a HECM. If the home currently has another mortgage, this will limit the availability of a HECM.
  • Another risk is that the borrower could outlive the loan term and exhaust the available funds. The loan term for a HECM is typically based on the age of the youngest qualifying borrower, and the loan must be paid back when the last qualifying borrower no longer occupies the home as their primary residence or when the borrower passes away.
  • Finally, HECMs may have higher fees compared to traditional mortgages, which can impact the overall cost of the loan. It’s important for borrowers to carefully consider these risks and limitations before deciding if a HECM is the right financial tool for them.


In conclusion, Home Equity Conversion Mortgages (HECM) can be a valuable financial tool for seniors who want to access the equity in their home without having to sell it. HECMs offer several benefits, including the ability to receive the proceeds as a lump sum, monthly payments, or a line of credit, the flexibility to use the proceeds for any purpose, and the potential to increase cash flow without affecting Social Security or Medicare benefits.

As with any financial product, there are some risks and limitations, as we have explained. By understanding the benefits and risks of a HECM, seniors can make an informed decision about whether this financial tool is right for their unique circumstances.

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