What is the Difference Between a Reverse Mortgage and a Home Equity Conversion Mortgage?

For decades, reverse mortgages have provided seniors with a way to access home equity and supplement retirement income. As many homeowners enter retirement with substantial equity but fixed monthly income, reverse mortgage solutions have become increasingly popular.

Among these options, the Home Equity Conversion Mortgage (HECM) is the most widely used reverse mortgage program. While the terms "reverse mortgage" and "HECM" are often used interchangeably, they are not exactly the same. Understanding the differences can help retirees and their families make informed financial decisions.

In this guide, we'll explain how reverse mortgages work, compare reverse mortgages and HECMs, review eligibility requirements, and discuss important considerations for homeowners in Tucson and throughout Southern Arizona.

What Is a Reverse Mortgage?

A reverse mortgage allows eligible homeowners to convert a portion of their home equity into cash without selling their home or making required monthly mortgage payments.

Unlike a traditional mortgage where borrowers make payments to a lender, a reverse mortgage allows the lender to provide funds to the homeowner. The homeowner retains title to the property and can continue living in the home as long as they meet loan obligations.

The loan balance increases over time as interest accrues, and repayment is generally deferred until the borrower sells the home, moves out permanently, or passes away.

Types of Reverse Mortgages

There are three primary types of reverse mortgages:

Home Equity Conversion Mortgages (HECMs)

HECMs are federally insured by the Federal Housing Administration (FHA) and are the most common type of reverse mortgage available today.

Proprietary Reverse Mortgages

These are private reverse mortgage products offered by financial institutions. They are not federally insured and may offer higher loan amounts for homeowners with higher-value properties.

Depending on state guidelines and lender requirements, some proprietary programs may be available to homeowners younger than 62.

Single-Purpose Reverse Mortgages

Single-purpose reverse mortgages are less common and are typically offered by local government agencies or nonprofit organizations. Funds must be used for a lender-approved purpose, such as home repairs or property taxes.

How Does a Reverse Mortgage Work?

To qualify for a reverse mortgage, homeowners generally must either own their home outright or have sufficient equity to pay off any remaining mortgage balance at closing.

Borrowers may receive funds through several payout options, depending on the loan program and lender availability:

• Lump-sum payment
• Line of credit
• Monthly payments
• Combination of payment options

It's important to understand that interest accrues on the outstanding balance, causing the loan amount to grow over time.

What Is a Home Equity Conversion Mortgage (HECM)?

A Home Equity Conversion Mortgage (HECM) is a specific type of reverse mortgage insured by the FHA.

Because HECMs are federally backed, they include borrower protections that may not be available with proprietary reverse mortgage products. To qualify, borrowers must generally be at least 62 years old and occupy the property as their primary residence.

Like other reverse mortgages, HECM proceeds can be used to pay off an existing mortgage balance, with any remaining funds available to the homeowner.

How Much Can You Borrow with a HECM?

Several factors determine the amount a borrower may qualify for, including:

• Age of the youngest borrower
• Current interest rates
• Available home equity
• FHA lending limits
• Appraised property value

A reverse mortgage specialist can help estimate available proceeds based on individual circumstances.

How Does a HECM Work?

HECMs are designed to help retirees access home equity while remaining in their homes.

Although monthly mortgage payments are not required, borrowers must continue to:

• Pay property taxes
• Maintain homeowners insurance
• Keep the property in good condition
• Meet occupancy requirements

Borrowers may choose to make voluntary payments if they wish to reduce accrued interest or manage the loan balance.

Typically, the loan becomes due when:

• The borrower sells the home
• The borrower permanently moves out
• The borrower passes away

Reverse Mortgage vs. HECM: Key Differences

While all HECMs are reverse mortgages, not all reverse mortgages are HECMs.

Here are some of the primary distinctions:

One important similarity is that both HECMs and most proprietary reverse mortgages are non-recourse loans. This means neither borrowers nor their heirs generally owe more than the home's value when the loan is repaid.

HECM Eligibility Requirements

To qualify for a Home Equity Conversion Mortgage, borrowers typically must:

• Be at least 62 years old
• Live in the home as their primary residence
• Own the property outright or have substantial equity
• Demonstrate the ability to pay property taxes, insurance, and ongoing property expenses
• Complete required HUD-approved counseling

Because of the federal safeguards built into the program, HECMs are often considered one of the most secure reverse mortgage options available.

How Is a Reverse Mortgage Repaid?

Repayment is generally not required until a triggering event occurs, such as the homeowner selling the property, permanently leaving the home, or passing away.

At that point, the loan may be satisfied in several ways:

Sell the Home

The property can be sold, with loan proceeds used to pay off the balance. Any remaining equity belongs to the homeowner or heirs.

Refinance or Purchase the Home

Family members or heirs may choose to refinance the property or purchase it by paying off the reverse mortgage balance.

Transfer the Property to the Lender

If repayment is not desired, heirs may choose to transfer ownership of the property to satisfy the loan obligation.

Is a Reverse Mortgage Right for You?

A reverse mortgage or HECM may provide additional financial flexibility during retirement, but it is important to understand both the benefits and responsibilities before moving forward.

For homeowners in Tucson and Southern Arizona, evaluating all available options—including traditional refinancing, home equity strategies, and reverse mortgage solutions—can help determine the best fit for your long-term goals.

If you're exploring retirement financing options, the experienced team at The Polder Group at CrossCountry Mortgage can help you understand your choices and connect you with the resources you need. Visit our About Us page to learn more about our team, explore the areas we serve throughout Southern Arizona, or contact us to discuss your home financing questions.

Frequently Asked Questions

What is the difference between a reverse mortgage and a HECM?

A HECM is a federally insured reverse mortgage backed by the FHA. Other reverse mortgages, such as proprietary reverse mortgages, are offered by private lenders and may have different guidelines.

Do I still own my home with a reverse mortgage?

Yes. The homeowner retains ownership and title to the property as long as loan obligations are met.

Are monthly mortgage payments required?

No monthly principal and interest payments are required. However, borrowers must continue paying property taxes, homeowners insurance, and property maintenance expenses.

Can heirs keep the home after a reverse mortgage?

Yes. Heirs may choose to pay off the loan balance, refinance the property, or sell the home depending on their goals and financial situation.

This article is for educational purposes only and does not constitute financial or mortgage advice. Loan programs, rates, and guidelines may change at any time. All loans are subject to credit approval and underwriting. For guidance tailored to your situation, consult a licensed mortgage professional.