A Home Equity Conversion Mortgage (HECM) is the federally insured reverse mortgage program administered by the Federal Housing Administration (FHA) for homeowners age 62 or older. Unlike a traditional "forward" mortgage where the borrower makes monthly payments to reduce principal, a reverse mortgage pays cash out to the homeowner (as a lump sum, monthly tenure annuity, or growing line of credit), and interest accrues onto the loan balance over time ("rising debt, falling equity").
Core legal and financial mechanics of a HECM include: 1. Zero Monthly P&I Payments: The homeowner is never required to make monthly principal and interest payments for as long as they live in the home as their primary residence. 2. Homeowner Obligations: The borrower retains title to the home and MUST continue paying property taxes, homeowner’s insurance, and HOA dues, as well as maintaining the physical property. 3. Non-Recourse Federal Guarantee: A HECM is strictly a non-recourse loan. When the last surviving borrower permanently leaves the home or passes away, neither the borrower nor their heirs can ever owe more than 95% of the home’s appraised market value at the time of repayment, even if the accrued loan balance exceeds the property value.