HECM Reverse Mortgage: Eligibility, Costs, and Repayment

A HECM reverse mortgage is the Home Equity Conversion Mortgage, a federally insured loan that lets homeowners aged 62 and older convert part of their home equity into cash without making monthly mortgage payments. The Federal Housing Administration insures the loan, the balance grows over time instead of shrinking, and repayment is deferred until you sell the home, move out permanently, or pass away. How much you can access depends on your age, your home’s appraised value, and current interest rates, all subject to a national HECM lending limit of $1,249,125 for 2026.¹

Who Can Get One

The youngest borrower on the loan must be at least 62 at closing.² The property must be your primary residence, meaning you live there most of the year. You also need enough equity that any existing mortgage or liens can be paid off at closing, usually with the HECM proceeds themselves.

Eligible properties include single-family homes, FHA-approved condominiums, and dwellings of up to four units where you occupy one as your residence.³ Manufactured homes qualify if they sit on a permanent foundation and meet FHA construction standards. The home has to pass FHA’s minimum property standards for structural soundness, safety, and habitability.

HUD also requires a financial assessment. The lender reviews your credit, income sources, and debts to judge whether you can keep up with property taxes, homeowners insurance, and maintenance. If the lender has doubts, the loan will include a Life Expectancy Set-Aside, a carve-out of your proceeds reserved to pay future taxes and insurance.⁴ The set-aside reduces the cash you can actually use, so a clean history of paying taxes and insurance on time helps.

How Much You Can Borrow

The starting point is the Maximum Claim Amount, which is the lesser of your appraised home value or the national HECM limit. For 2026 that ceiling is $1,249,125 and applies uniformly across all states and U.S. territories.¹

From that figure, HUD applies a principal limit factor that decides what percentage you can actually borrow. Two variables drive the factor: the age of the youngest borrower (or eligible non-borrowing spouse) and the expected interest rate at application. Older borrowers get a larger percentage because their projected loan term is shorter, and lower rates also push the percentage up. As a rough benchmark, a 62-year-old at a 5% expected rate might access around 52% of the Maximum Claim Amount, while an 80-year-old at the same rate would qualify for a noticeably larger share.⁵ Your lender runs the exact calculation from HUD’s published tables.

One important cap: you cannot access more than 60% of your principal limit during the first 12 months. The exception is mandatory obligations, like paying off an existing mortgage or covering closing costs. If those push you above the cap, you can draw enough to cover them plus an additional 10% of the principal limit.⁶ The rule exists to discourage borrowers from exhausting their equity too quickly.

How You Receive the Money

Your options depend on the interest rate structure you choose. Fixed-rate HECMs require a single lump sum at closing. Adjustable-rate HECMs open five additional choices:

Line of credit. You draw funds as needed, and the unused portion grows over time at the same rate the loan balance accrues interest, effectively increasing your borrowing power the longer you wait.
Tenure payments. Equal monthly payments for as long as you live in the home as your primary residence, even if the total exceeds the home’s value.
Term payments. Equal monthly payments for a fixed number of years you choose.
Modified tenure. A line of credit combined with smaller monthly payments that continue for life.
Modified term. A line of credit combined with monthly payments for a set number of years.

The line of credit is the most popular choice. The growth feature makes unused funds more valuable over time, which works well as a hedge against future expenses like long-term care. You can also switch between payment plans after closing, except with fixed-rate loans, which are locked into the lump sum.

What It Costs

HECMs carry several layers of fees. Most can be financed into the loan balance rather than paid out of pocket, but every dollar financed accrues interest for the life of the loan.

The lender’s origination fee follows a tiered formula: 2% of the first $200,000 of the Maximum Claim Amount, plus 1% of anything above that, capped at $6,000. Homes valued under $125,000 have a floor of $2,500.

FHA charges an upfront mortgage insurance premium of 2% of the Maximum Claim Amount at closing, plus an annual premium of 0.5% of the outstanding loan balance added to what you owe. That insurance funds the HECM’s non-recourse protection and guarantees your payment stream even if the lender fails.

Other closing costs include an FHA-compliant appraisal (typically $300 to $600 for a single-family home, more for complex or rural properties), title search and title insurance, recording fees, and settlement charges. If repairs are needed to meet FHA property standards, those costs either come out of your proceeds or must be completed before closing.

Required HUD Counseling

Federal law requires every HECM applicant to complete a session with a HUD-approved counseling agency before applying.⁷ The counselor must be independent, with no ties to anyone who originates, services, or funds the loan or sells related financial products like annuities.

The counselor covers alternatives to a reverse mortgage, the financial consequences of taking one, possible effects on government benefits and your estate, and your specific numbers. Bring income documentation, property tax bills, and insurance records. Sessions typically run $125 to $200, with reductions available for lower-income borrowers. Afterward the counselor issues Form HUD-92902, the HECM Counselor’s Certificate, without which no lender will accept your application. If the counselor concludes you don’t understand the terms, they can decline to issue it.

When the Loan Comes Due

A HECM has no fixed maturity date. It becomes due when specific events happen.⁸ The main triggers:

Death of the last surviving borrower, when no eligible non-borrowing spouse qualifies for the deferral period.
Sale or transfer of the property to someone who is not a co-borrower.
The home stops being your primary residence, which includes moving to an assisted living facility or nursing home for more than 12 consecutive months.
Failure to pay property taxes, homeowners insurance, or flood insurance.
Failure to maintain the property in reasonable condition.

The property-charge default is where most preventable problems occur. If you miss a tax or insurance payment and no HECM funds remain to cover it, the servicer must notify you and HUD within 30 days. You then get 30 days to explain and cure the default.⁹ HUD guidance also allows servicers to offer repayment plans for outstanding advances, refinancing into a new HECM, or extended foreclosure timelines for borrowers aged 80 and older with serious health conditions.¹⁰ If you cannot or will not cure the default, the servicer calls the loan due.

What Happens to Heirs and a Surviving Spouse

A HECM is non-recourse. Neither you nor your heirs owe more than the home is worth when the loan comes due. The lender recovers the debt only through sale of the property and cannot pursue a deficiency judgment.⁸ FHA’s mortgage insurance absorbs any shortfall.

After the last borrower dies, heirs receive a due-and-payable notice and have 30 days to decide, with extensions of up to six months possible to allow time for a sale or refinance.¹¹ They have three basic options:

Pay off the loan. If the home is worth more than the balance, heirs can refinance conventionally or pay cash and keep the property.
Sell the property. Heirs may sell for at least 95% of the current appraised value, with net proceeds going to the loan balance. If the balance exceeds the sale price, FHA insurance covers the shortfall.¹²
Surrender the property to the servicer with no further obligation.

The 95% rule is the one families most often miss. If the loan balance has grown to $350,000 but the home appraises at $300,000, heirs can satisfy the debt by selling for at least $285,000 and walk away owing nothing.

If your spouse is younger than 62 and cannot be a co-borrower, HUD’s deferral-period rules can keep them in the home after you die. To qualify, the non-borrowing spouse must have been married to the borrower at closing, been named in the loan documents as an eligible non-borrowing spouse, and lived in the home continuously as a primary residence.¹³

After the last borrower’s death, an eligible non-borrowing spouse has 90 days to establish a legal right to remain in the property, either through ownership or a life estate, and must continue meeting all loan obligations. During the deferral period, no new loan advances are made, so the line of credit and monthly payments stop. A spouse who was not disclosed at origination cannot later qualify. Getting this right at closing is one of the most consequential decisions in the process.

Taxes and Effect on Benefits

HECM proceeds are not taxable income. The IRS treats them as loan advances rather than earnings, whether you take a lump sum, monthly payments, or line-of-credit draws.¹⁴

Interest works differently from a traditional mortgage. You cannot deduct interest as it accrues because you are not making payments. The deduction becomes available only when the interest is actually paid, usually when the loan is settled in full, and even then is generally limited: HECM interest is classified as home equity debt interest, which is only deductible if the proceeds were used to buy, build, or substantially improve the home securing the loan.¹⁵ Most borrowers use the money for living expenses, so the interest on those draws is not deductible.

Means-tested benefits are the trickier issue. Under SSI rules, which also govern Medicaid eligibility for many older adults, reverse mortgage proceeds count as a resource rather than income. If you take a lump sum and it is still in your bank account on the first day of the following month, it counts toward the SSI resource limit. Exceeding that limit can jeopardize both SSI and Medicaid.¹⁶ Spending or converting the funds within the same month you receive them avoids triggering the resource count. Social Security retirement and Medicare are not affected because they are not means-tested.

Using a HECM to Buy a Home

A HECM is not limited to homes you already own. Under the HECM for Purchase program, you combine reverse mortgage proceeds with a cash down payment to buy a new primary residence, then move in with no monthly mortgage payments.³ The property must be finished and habitable at closing, shown by a certificate of occupancy or equivalent.

This works well for borrowers who want to downsize or move closer to family without draining their savings on a purchase. The same age, counseling, and financial assessment rules apply. The principal limit factor decides how much of the price the HECM can cover, so older buyers can finance a larger share and the rest comes from their own funds.

1
U.S. Department of Housing and Urban Development. HUD FHA Announces 2026 Loan Limits
2
eCFR. 24 CFR 206.33 – Age of Borrower
3
eCFR. 24 CFR 206.45 – Eligible Properties
4
U.S. Department of Housing and Urban Development. HECM Financial Assessment and Property Charge Guide
5
U.S. Department of Housing and Urban Development. HUD FHA Reverse Mortgage for Seniors (HECM)
6
Congressional Research Service. HUD’s Reverse Mortgage Insurance Program: Home Equity Conversion Mortgages
7
Office of the Law Revision Counsel. 12 USC 1715z-20 – Insurance of Home Equity Conversion Mortgages
8
eCFR. 24 CFR 206.27 – Mortgage Provisions
9
eCFR. 24 CFR 206.205 – Property Charges
10
HUD Exchange. Guidelines for HECM Borrowers with Delinquent Property Charges
11
Consumer Financial Protection Bureau. With a Reverse Mortgage Loan, Can My Heirs Keep or Sell My Home After I Die?
12
eCFR. 24 CFR Part 206 – Home Equity Conversion Mortgage Insurance
13
eCFR. 24 CFR 206.55 – Deferral of Due and Payable Status for Eligible Non-Borrowing Spouses
14
Internal Revenue Service. For Senior Taxpayers
15
Internal Revenue Service. Publication 936 (2025) – Home Mortgage Interest Deduction
16
Centers for Medicare and Medicaid Services. Letter Regarding Lump Sums and Estate Recovery