Home Equity Conversion Mortgage
Definition and meaning of Home Equity Conversion Mortgage in real estate.
A home equity conversion mortgage is a specific type of reverse mortgage insured by the Federal Housing Administration that allows homeowners aged 62 or older to convert a portion of their home equity into tax-free cash. Unlike standard home loans, the borrower does not make monthly mortgage payments.
In more detail
The loan balance increases over time as interest and fees accumulate, and the loan is typically repaid when the borrower sells the home, moves out permanently, or passes away. To qualify, applicants must own their home outright or have a small remaining mortgage balance that can be paid off at closing using the loan proceeds.
The amount a homeowner can borrow depends on the age of the youngest borrower, current interest rates, and the home's appraised value. Borrowers must continue to pay property taxes, homeowners insurance, and maintain the property to avoid defaulting on the loan.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Minimum age | 62 years old |
| Insured by | Federal Housing Administration (FHA) |
| Also known as | HECM or Reverse Mortgage |
A senior homeowner uses a home equity conversion mortgage to pay off their remaining mortgage balance and receive monthly payments to help cover living expenses.
Frequently asked questions
What happens to the home when a HECM borrower passes away?
The heirs typically have a set period, usually up to one year, to either sell the home to pay off the loan balance or refinance the debt to keep the property.
Can I lose my home with a home equity conversion mortgage?
Yes, if you fail to pay your property taxes, default on homeowners insurance, or allow the home to fall into severe disrepair, the lender can foreclose on the property.