HECM Refinance

A HECM Refinance is an FHA-insured Home Equity Conversion Mortgage for homeowners age 62 and older. It can replace an existing traditional mortgage with a HECM that does not require monthly principal-and-interest mortgage payments, provided the borrower continues to meet the terms of the loan.

If you are currently making a monthly mortgage payment, paying off that mortgage with a HECM eliminates the required monthly principal-and-interest portion of that payment.

For example, eliminating a $2,000 monthly principal-and-interest payment can free approximately $24,000 per year of household cash flow that was previously going toward the mortgage.

This does not technically increase your income — it allows you to keep more of the income you already receive each month.

Your existing mortgage is paid off at the HECM closing using proceeds from the new HECM. The HECM then becomes the new first mortgage on the property.

Unlike a traditional first mortgage, however, the HECM does not require a monthly principal-and-interest payment.

No. There is no required monthly principal-and-interest mortgage payment on a HECM.

You remain responsible for property taxes, homeowners insurance, applicable HOA or condominium fees, property maintenance, and other required property charges, and you must continue to occupy the property as your principal residence.

Possibly. The amount available through a HECM depends primarily on the age of the youngest borrower or eligible non-borrowing spouse, the home’s appraised value, current interest rates, and FHA program limits.

The HECM must provide sufficient proceeds, together with any funds the borrower may contribute if necessary, to satisfy existing liens and other required obligations at closing.

Depending on the amount of home equity available, yes. After paying off the existing mortgage and applicable loan costs and obligations, additional proceeds may be available.

The amount available is determined individually for each borrower and property.

HECM proceeds can provide substantial financial flexibility. Homeowners commonly use available funds to:

• Supplement retirement income
• Pay healthcare or long-term-care expenses
• Establish an emergency reserve
• Make home improvements or modifications
• Pay off credit cards or other debt
• Replace a vehicle or make another major purchase
• Help family members
• Reduce the need to withdraw money from investments
• Preserve retirement and investment assets
• Provide additional funds for everyday living expenses

Yes. You retain title and ownership of your home. A HECM is a mortgage secured by the property — it does not transfer ownership of your home to the lender or to FHA.

You may continue living in the home, sell it, or pay off the HECM at any time, subject to the terms of the loan.

Yes. Although there is no required monthly principal-and-interest payment, you may voluntarily make payments toward the loan balance at any time.

This gives the homeowner flexibility — the decision to make a principal or interest payment is generally theirs rather than a required monthly obligation.

The amount available is based primarily on:

• Age of the youngest borrower or eligible non-borrowing spouse
• Appraised value of the home
• Current interest rates
• FHA’s applicable HECM lending limit
• Existing mortgage and other liens
• Required closing costs and mortgage insurance
• The borrower’s financial assessment

Generally, older borrowers and homeowners with greater equity may have more HECM proceeds available, although each transaction must be individually calculated.

A HECM does not qualify borrowers in the same manner as a traditional mortgage, where the primary objective is determining whether the borrower can make a new monthly mortgage payment.

However, FHA requires a financial assessment to determine the borrower’s ability and willingness to continue paying property taxes, homeowners insurance, and other required property charges. HUD-approved HECM counseling is also required before the loan can be completed.

The HECM generally becomes due and payable when the last borrower sells the home, permanently moves from the home, dies, or otherwise no longer meets the loan’s occupancy and other requirements.

When the home is ultimately sold, the HECM balance is normally repaid from the sale proceeds. Any remaining equity belongs to the homeowner or the homeowner’s estate.