A home equity conversion mortgage, or HECM, is commonly known as a reverse mortgage. These products allow seniors age 65 and older to supplement their income with home equity or, in some circumstances, purchase a primary residence. While many lenders offer this type of product, it is the only type of reverse mortgage that is federally insured. Those interested in such a loan should apply through a Federal Housing Authority (FHA) approved lender.

What are the terms of a HECM?

With this type of loan, there are no installments or monthly fees; rather, you receive a monthly cash payment until you no longer use the foreclosed home as your primary residence. When the loan holder dies or sells the property, cash, interest and finance charges must be repaid, usually through the equity in the home itself. Any proceeds remaining after the debt is paid may be retained or left to surviving family members. Your spouse or loved ones will not be responsible for this debt.

Who is eligible for a HECM?

To qualify for this type of financial product, you must be at least 62 years of age, own paid-up property or have substantial home equity, and live in the property as your primary residence. You must not be delinquent on any federal debt and you must have the financial resources to pay the costs associated with the property, including taxes, insurance and association fees. As part of the application process, you must also attend an official information session. Qualifying properties include a single-family or multi-unit property in which you occupy one of the units, as well as certain approved manufactured homes and condominiums.

How much money will I receive?

The amount of the monthly payment depends on the amount of principal you have, your age and the current interest rate. Your lender will check your income, assets, expenses, and good credit, and make sure you are current on taxes and insurance premiums. If you opt for a fixed-rate loan, you’ll receive a single-out-of-pocket, lump-sum payment plan, which means you’ll receive the same amount of money each month. Those who opt for an adjustable rate can choose between fixed monthly payments, flexible monthly payments financed by a line of credit, or a combination of both.

What are the associated costs?

The costs of this loan include an insurance premium of between 5 and 2.5 percent of the total amount of the loan; any third party charges, such as appraisals, title search and insurance, and inspections; an origination fee of up to $6,000; and a monthly service fee of up to $35. You can choose to finance these costs as part of the mortgage, which will reduce the total amount of payments you will receive, or pay the costs up front.

You can learn more about whether a reverse mortgage is right for you by consulting with an FHA-approved lender.