What Is a HECM Line of Credit?

A Home Equity Conversion Mortgage (HECM) is a federally-insured loan program administered by the Federal Housing Administration (FHA) and regulated by the Department of Housing and Urban Development (HUD). It allows homeowners aged 62 and older to access a portion of their home equity without making monthly mortgage payments.

Unlike a traditional mortgage where you make payments to a lender, a HECM works in reverse — the lender makes funds available to you. You maintain full ownership and title to your home.

When you open a HECM, HUD determines how much of your home equity you can access based on three factors:

1. Your age (or the youngest borrower's age) — older borrowers qualify for a higher percentage 2. Current interest rates — lower rates mean higher access 3. Your home's appraised value (capped at the FHA lending limit of $1,209,750 in 2025)

The calculation produces a Principal Limit Factor (PLF) — a percentage that determines your total available credit. From this, mandatory obligations (existing mortgage payoff, closing costs, upfront MIP) are deducted, leaving your net available line of credit.

HECM borrowers can receive funds in several ways:

• Line of Credit: Access funds as needed. Unused amounts grow over time. • Tenure: Equal monthly payments for as long as you live in the home. • Term: Equal monthly payments for a fixed period. • Lump Sum: Available only with a fixed-rate HECM. • Combination: Mix any of the above to fit your needs.

The most popular option — and the one recommended by most retirement researchers — is the Line of Credit, because of its unique growth feature.

To qualify for a HECM, you must:

• Be at least 62 years old • Own the home as your primary residence • Have sufficient equity (typically 50%+ after existing mortgage payoff) • Complete HUD-approved counseling with an independent agency • Pass a financial assessment showing ability to pay property taxes, insurance, and maintenance

The financial assessment, introduced in 2015, ensures borrowers can sustain the ongoing obligations of homeownership. If there are concerns, the lender may set aside a Life Expectancy Set-Aside (LESA) to cover taxes and insurance.

The HECM program includes several important consumer protections:

• Non-recourse: You can never owe more than the home is worth • No payment required: As long as you live in the home and maintain property charges • FHA insurance: Guarantees your credit line even if the lender goes out of business • Growth guarantee: The unused LOC grows at a contractual rate regardless of home value changes • Counseling requirement: Independent HUD-approved counselors ensure you understand the product before proceeding

The most common misunderstanding about HECMs is that "the bank takes your home." This is false. You maintain full ownership and title throughout the life of the loan. The HECM is simply a lien — just like any other mortgage.

The loan becomes due when the last borrower permanently leaves the home (through sale, move, or death). At that point, heirs have the option to sell the home and keep remaining equity, refinance into a traditional mortgage, or deed the home to the lender with no further obligation.