An FHA reverse mortgage, officially known as a Home Equity Conversion Mortgage (HECM), is a loan program for homeowners aged 62 or older that allows them to convert a portion of their home’s equity into cash.
Unlike a traditional mortgage (sometimes called a forward mortgage), a reverse mortgage does not require the borrower to make monthly payments to the lender. Instead, the lender makes payments to the borrower or extends a line of credit, using the home as collateral.
The HECM is the only reverse mortgage insured by the U.S. federal government and offered through FHA-approved lenders.
Over 1.3 million older homeowners have taken advantage of HECM loans since 1990, although many seniors still choose other home equity tools like HELOCs or cash-out refinances to tap their equity.
Key Takeaways:
A HECM lets homeowners 62 or older borrow against their home equity without selling the home. The lending limit in 2025 is $1,209,750.
Borrowers can receive funds as a lump sum at closing, monthly payments (for a set term or as long as you live in the home), a line of credit, or a combination of these. No monthly mortgage payments are required, so the loan balance increases over time as interest and insurance premiums accrue.
The homeowner also keeps the title, and the loan becomes due and payable only when a maturity event occurs, which typically happens when the last borrower (or eligible spouse) dies, sells the house, or moves out (for example, into long-term care) for 12 months or more. At that point, the repayment is usually made by selling the home.
Borrowers must still pay property taxes, insurance, and maintain the home; failure to do so can result in default. As long as they met these obligations, borrowers can stay in the home indefinitely without repaying the loan.
Reverse mortgages have several characteristics that distinguish them from other home equity loans.
When the loan becomes due and if the home sells for less than the loan balance, the borrower (or heirs) cannot be personally liable for the difference. The lender’s only recourse is to the home itself.
For example, if you owe $300,000 at loan maturity but the home sells for $250,000, the FHA insurance fund pays for the $50,000 gap, not your family. This protects borrowers (or their estates) from debt beyond the value of the home.
The hallmark of a reverse mortgage is that you have no required monthly payment to the lender. As long as you live in the home and meet the loan obligations (taxes, insurance, maintenance), you don’t need to repay the loan until the end. This can dramatically improve cash flow for retirees on fixed incomes.
Interest still accrues on the loan, but payment is deferred. You can choose to make payments or pay down interest, which will slow the growth of the balance, but it’s not required.
The freedom from monthly payments is a major benefit for those who are “house-rich but cash-poor.”
You can take the funds as a lump sum, often to pay off an existing mortgage or for those who need a large amount up front (note: fixed-rate HECMs only offer a lump sum draw).
You can also set up monthly payments to yourself, either for a set number of years (term payments) or as long as you live in the home (tenure payments), effectively creating an income stream from your equity.
Since they are FHA-backed, borrowers receive their funds even if the lender fails or the home value drops.
How does an FHA reverse mortgage (HECM) compare to a traditional forward mortgage, such as a standard FHA loan used to buy or refinance a home?
A traditional FHA mortgage is a debt you take on to buy or refinance a home, requiring income and monthly repayment. The goal of this loan is to acquire or restructure property ownership.
An FHA HECM is a way to withdraw equity from a home you already own. There are no monthly repayments, and seniors in retirement are the target demographic for this loan. The goal of a reverse mortgage is for cash flow and asset management.
Interestingly enough, many homeowners actually use both in their lifetime, first a forward mortgage to purchase the home, then a reverse mortgage decades later to support their retirement.
Here is a table that compares the features at a glance.
Feature | HECM Reverse Mortgage | Traditional FHA Mortgage |
Purpose | Convert home equity to cash for seniors | Purchase or refinance a home |
Monthly Payments | None required | Required |
Age Requirement | 62+ | No age restriction |
Credit Requirements | Flexible | Standard credit evaluation |
Repayment Trigger | Sale, move-out, or death | Regular monthly payments over the loan term |
Equity Requirement | Significant equity needed | Down payment or existing mortgage balance |
A reverse mortgage is not the only option for homeowners wanting to access their home equity for cash.
Two common alternatives are a Home Equity Line of Credit (HELOC) and a cash-out refinance of your existing mortgage. Each of these financial tools works differently, and below is a detailed comparison of a FHA HECM reverse mortgage vs HELOC vs cash-out refinance:
Feature | HECM (FHA Reverse Mortgage) | HELOC (Home Equity Line of Credit) | Cash-Out Refinance |
Age Requirement | 62+ | No age restriction | No age restriction |
Monthly Payments | None required | Required during the repayment period | Required |
Interest Rate Type | Fixed or adjustable | Variable | Fixed or adjustable |
Access to Funds | Lump sum, monthly, or line of credit | Revolving line of credit | Lump sum at closing |
Repayment Trigger | Sale, move-out, or death | End of the draw period or default | Monthly payments begin immediately |
Closing Costs | Higher | Lower | Higher |
Impact on Existing Loan | Does not affect the existing mortgage | Second lien; existing mortgage remains | Replaces existing mortgage |
A reverse mortgage (HECM) can be useful for:
Those who benefit most from HECMs are those over 62 with substantial home equity who want to use it to support their retirement years while continuing to live in their homes.
But it’s not for everyone. You may not need a reverse mortgage if you have plenty of income or assets to fund retirement. If you want to leave your home equity intact for your heirs or you plan to move soon, a reverse mortgage will probably not align with those goals.
If you stop paying taxes or insurance or let the home fall into disrepair, you could lose your home. But if you meet your obligations, then you’ll be fine.
You or your heirs won’t owe the difference if the home value is lower than the loan balance. FHA insurance will cover any shortfall when the home is sold.
No, it’s a loan, not income, so you won’t pay taxes on the money you receive from an FHA HECM reverse mortgage.
It depends on your age, rates, and equity. Most borrowers access about 50-60% of their home’s value, but the limit is $1,209,750 (though that probably does not apply to most people).
Yes, if your equity is high enough to pay off the old loan at closing. That’s usually the first step.
A reverse mortgage pays you with no monthly repayment. A HELOC gives flexible access, but you must start repaying it immediately or during the repayment period.
A reverse mortgage defers repayment. A cash-out refinance gives you cash upfront but has new monthly mortgage payments.
