A Home Equity Conversion Mortgage lets a homeowner who is at least 62 turn part of the equity in a house into cash without sending the lender a monthly mortgage payment. The catch is in the name. The loan runs in reverse: interest and fees are added to the balance every month, so the amount owed climbs while the equity left in the property falls. That single mechanic defines the product for older Americans weighing steady income now against a smaller inheritance for their children later.
How a Home Equity Conversion Mortgage pays a homeowner
A Home Equity Conversion Mortgage, or HECM, is the most common type of reverse mortgage, and federal housing insurance stands behind it. Like a traditional mortgage, it lets an owner borrow against a home and keep the title in their own name. Unlike a traditional mortgage, the borrower makes no monthly payments toward the loan. The lender instead pays the homeowner, and repayment is deferred until the borrower no longer lives in the home, according to the Consumer Financial Protection Bureau.
The age floor is firm. A HECM is available only to homeowners 62 and older, which is why the product is marketed almost exclusively to retirees who are equity-rich but short on monthly cash flow. A borrower can take the proceeds as a lump sum, a line of credit, fixed monthly advances, or a combination, and the money is generally not taxed as income because it is loan proceeds rather than earnings.
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Why the balance grows instead of shrinks
With a conventional loan, each payment chips away at the principal, so the balance falls and equity rises over time. A reverse mortgage inverts that arithmetic. Because the homeowner makes no monthly payments, interest and fees are folded into the balance each month, and the amount owed goes up rather than down, the bureau explains. As the loan balance rises, the home equity that remains behind it shrinks by the same amount.
The agency is blunt about a common misconception. A reverse mortgage is not free money. It is a loan in which borrowed money plus interest plus fees compound into a rising balance that someone eventually has to repay. For a household that stays in the home for many years, the balance can grow to consume most or all of the property’s value, leaving little equity for the estate.
That erosion is the direct cost of the monthly cash. A homeowner who draws a steady advance for a decade trades a decade of compounding interest against the value of the house. The longer the loan runs and the more the borrower withdraws, the less remains for heirs. The CFPB’s reverse mortgage resource center encourages older adults to model that tradeoff before signing, because the decision is difficult to unwind once the balance has grown.
What heirs face when the loan comes due
The reckoning arrives when the last borrower dies or permanently moves out. At that point the loan becomes due and payable, and the debt is usually satisfied by selling the home. Heirs who want to keep the property must repay the balance, typically by paying it off or refinancing into their own loan. Those who do not want the house can sell it and keep any proceeds left after the loan is settled.
The timeline is short at first. Once heirs receive a due-and-payable notice from the lender, they have 30 days to decide whether to buy, sell, or turn the home over to satisfy the debt, according to CFPB guidance on what heirs can do. That window can be extended up to six months to give the family time to sell the home or arrange financing, but the clock runs regardless of how quickly a grieving family can act.
Federal insurance adds one important protection. A HECM is a non-recourse loan, meaning the amount owed can never exceed the home’s value at the time it is sold. If the balance has grown larger than the house is worth, heirs are not on the hook for the shortfall, and the insurance covers the difference for the lender. That backstop limits the family’s downside, but it does not restore lost equity — it simply caps the loss at the value of the home.
The obligations that can trigger default
A reverse mortgage does not erase the ordinary costs of owning a home. The borrower must continue to pay property taxes and homeowners insurance, keep the house in good repair, and use it as a principal residence. Falling behind on taxes or insurance, or moving out for an extended stay in assisted living, can make the loan due and payable early. The bureau notes that a move into a nursing home or assisted living facility can end the deferral even while the borrower is still living.
Scams cluster around the product, and the CFPB warns older homeowners to be wary of contractors who push a reverse mortgage to finance home repairs and of advertisements that falsely imply government endorsement. The Department of Veterans Affairs, for one, offers no reverse mortgage loans, so any pitch promising a special veterans’ deal is a red flag. Most reverse mortgages also carry a three-day right of rescission, allowing a borrower to cancel in writing within three business days of closing.
For a house-rich, cash-poor retiree, the appeal is real: monthly income drawn from an asset that would otherwise sit locked in the walls. The unresolved question for each family is whether that income today is worth the inheritance it quietly consumes, a calculation that turns on how long the borrower stays and how much the balance is allowed to grow before the home changes hands.
This article was researched and drafted with the assistance of artificial intelligence.
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