Reverse Mortgages in Retirement: How a HECM Works
A Home Equity Conversion Mortgage (HECM) is the federally insured reverse mortgage. It lets homeowners 62 and older borrow against their home equity without monthly principal and interest payments, as long as they keep living in the home and meet the loan’s obligations.
It isn’t a complete retirement plan, and it isn’t free money. Interest and fees are added to the balance each month, so the amount you owe grows over time. The loan generally becomes due when you sell, move out, or the last surviving borrower dies, though an Eligible Non-Borrowing Spouse may qualify to remain in the home under HUD’s rules. This guide explains who qualifies, what it costs, what you must keep paying, and what it means for your home and heirs.
Is a Reverse Mortgage the Right Tool for You?
Some homeowners consider a HECM to supplement Social Security, cover healthcare costs, or adjust after a major life change. Whether it fits depends on your other income and savings, how long you plan to stay in the home, and what you want to leave to heirs. A HUD-approved counselor and an independent financial professional can help you weigh it against other ways to use home equity. For state-specific details, see our Arizona reverse mortgage guide.
A reverse mortgage is not the only route, and it is not open to everyone: a HECM requires you to be 62 or older and meet HUD’s other requirements. If you’re younger or would rather not take one on, compare alternatives (our guide is written for Arizona homeowners). A home equity investment provides cash without monthly payments in exchange for a future settlement obligation. A HELOC requires monthly payments and income-based qualification, and its total cost depends on the rate, fees, and how much you borrow.
If you’re comparing options without monthly loan payments, review their costs, continuing obligations, and eventual repayment or settlement requirements. Compare no-monthly-payment home equity options.
How Does a HECM Work? Understanding the FHA-Insured Safeguards
A Home Equity Conversion Mortgage (HECM) is an FHA-insured loan that allows homeowners 62 and older to access a portion of their equity while continuing to own and live in their home. Most reverse mortgages are HECMs. Some lenders offer proprietary reverse mortgages, which are not insured by the federal government.
- No monthly mortgage payments: You aren’t required to make monthly principal and interest payments. You must keep paying property taxes and homeowners insurance and keep the home in good repair.
- The balance grows: Interest and fees, including an annual mortgage insurance premium equal to 0.5% of the outstanding balance, are added to your loan balance each month.
- Stay in the Neighborhood You Love: This isn’t about downsizing; it’s about adjusting your monthly budget while you continue to live in your home, provided loan obligations are maintained.
- Protection if the balance exceeds the home’s value: If the balance grows larger than the home’s value, you or your heirs may not have to pay the difference. Heirs who sell won’t have to pay more than 95% of the home’s appraised value, and mortgage insurance covers the remaining balance.
What it costs: HECM costs include an origination fee ($6,000 or less), an initial FHA mortgage insurance premium, third-party closing costs such as an appraisal and title search, servicing fees, interest, and the annual mortgage insurance premium. Ongoing costs are added to your loan balance each month, which reduces your remaining equity over time.
One Important Note: A HECM is a secured loan. Failure to pay property taxes or insurance, or to keep the home in good repair, can make the loan due earlier. Federal rules require counseling with a HUD-approved HECM counseling agency before you receive a HECM, and talking with an independent financial advisor is strongly encouraged.
Common Questions: Will I Lose My Home or Burden My Heirs?
- “Will I lose my home?” You retain ownership, but foreclosure is possible if the loan becomes due and is not resolved. The home must remain your principal residence, and you must keep paying property taxes and homeowners insurance and keep the home in good repair. Falling behind on those obligations can make the loan due. The loan also generally becomes due when the last surviving borrower dies, sells the home, or no longer lives there as a principal residence, including being away for more than 12 consecutive months in a healthcare facility with no co-borrower in the home. An Eligible Non-Borrowing Spouse may qualify to remain under HUD’s rules.
- “What about my heirs?” See “What happens to my home when I pass away?” in the FAQ below.
- “Is this a last resort?” Not necessarily. Some homeowners set up a HECM line of credit as a standby source of funds. Any amount drawn adds to the loan balance, so weigh the costs.
For the full explanation of how the credit line growth feature works, see the HECM Line of Credit guide (written for Arizona homeowners).
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FAQ: How a Reverse Mortgage Affects Your Home and Heirs
HECM borrowers must be at least 62. A younger spouse who isn’t a borrower may be able to stay in the home after the borrowing spouse dies if they qualify as an Eligible Non-Borrowing Spouse under HUD’s rules.
Yes, in many cases, but your existing mortgage must be paid off when you close on the reverse mortgage. Ask the lender or a HUD-approved counselor how much of the HECM proceeds would go toward that payoff.
If you are away for more than 12 consecutive months in a healthcare facility and no co-borrower lives in the home, the loan generally becomes due. An Eligible Non-Borrowing Spouse may qualify for protection under HUD’s rules. A permanent move can also trigger repayment, so discuss your circumstances with the servicer and a HUD-approved counselor before making care or housing decisions.
With an adjustable-rate HECM, the unused portion of a line of credit generally grows over time, increasing the amount available to borrow. This is growth in borrowing capacity, not interest earned, and it doesn’t apply to fixed-rate HECMs. Some borrowers keep the line as a standby source of funds; whether that fits your plan is worth discussing with a fee-only financial advisor.
Under IRS Publication 936 for 2025 tax returns, reverse mortgage payments are treated as loan advances, not income, and interest that accrues on a reverse mortgage generally isn’t deductible as home mortgage interest. Check current IRS guidance or a tax professional for the year you file.
Yes. You must receive counseling from a HUD-approved reverse mortgage counseling agency before you receive a HECM. The counselor will explain the loan’s mechanics, costs, alternatives, and your obligations. Find a HUD-approved HECM counseling agency.
The loan generally becomes due when the last surviving borrower dies. An Eligible Non-Borrowing Spouse may qualify for protections under HUD’s rules. A surviving co-borrower is also a borrower, so the loan doesn’t become due while they continue to meet its terms.
Selling the home: Your heirs can sell the home, repay the loan, and keep any remaining equity. According to the CFPB, if the loan balance is more than the home is worth, heirs who sell won’t have to pay more than 95% of the home’s appraised value, and mortgage insurance covers the remaining balance.
Keeping the home: According to the CFPB, if there is no co-borrower or Eligible Non-Borrowing Spouse, heirs who want to keep the home must pay the full loan balance.
Timing: The CFPB says that after heirs receive the due-and-payable notice, they have 30 days to buy, sell, or turn the home over to the lender, and it may be possible to extend that timeline up to six months. Extensions aren’t guaranteed, so contact the servicer promptly.
It depends. A HELOC requires monthly payments and usually income-based qualification. A HECM requires no monthly principal and interest payments, but interest and fees are added to your balance over time. A HECM still involves a financial review: you must have enough money, or set aside part of the loan, to cover property taxes, insurance, and upkeep. Compare total costs, how long you plan to stay, and what you want to leave to heirs. See the HECM vs. HELOC comparison (Arizona guide).
Both can provide cash without monthly payments, but they work differently. A HECM’s balance grows with interest and fees, while an HEI’s settlement depends on the provider’s formula and your home’s future value. HECMs require you to be 62 or older; HEI eligibility varies by provider. Compare the total expected cost under different home-value scenarios. See HEI or reverse mortgage for retirement.
For Arizona Homeowners: Local Considerations and Resources
This section applies only to homes in Arizona.
Arizona does not tax Social Security benefits.
Arizona offers a Senior Valuation Protection program with age, residency, ownership, primary-residence, income, and renewal requirements. In Maricopa County, the County Assessor publishes the requirements. Before borrowing against your home, ask your county assessor whether the transaction could affect your eligibility. For more, see Arizona retirement tax benefits.
If your home’s value is above the HECM lending limit, some lenders offer proprietary reverse mortgages, which are not federally insured. See our jumbo reverse mortgage guide for Arizona.
For information about Arizona’s financial-services regulator, visit the Arizona Department of Insurance and Financial Institutions (DIFI).
Arizona resources: HELOCs after retirement in Arizona · Arizona HELOC guide · Home equity options for Arizona retirees
EquitySquirrel, operated by Scout Media LLC, is an educational resource, not a lender. This content does not constitute financial, legal, or lending advice. Reverse mortgage products are complex and may not be suitable for all homeowners. Consult a HUD-approved counselor and a licensed financial professional before making decisions about your home equity. Aleksandra Kadzielawski, Arizona real estate license #SA694336000.