Reverse Mortgage (HECM): Rules and Repayment

What a HECM is

HUD’s Handbook 4000.1 defines a HECM as “a non-recourse, reverse mortgage” that gives access to home equity “with no corresponding monthly mortgage payment.” HUD says the HECM “is only available through a Federal Housing Administration (FHA)-approved lender.”

Interest is not paid monthly. Under 24 CFR 206.19, interest “shall be added to the outstanding loan balance monthly.” Repayment of the balance “is deferred until the mortgage becomes due and payable.” The balance therefore grows over time.

The loan is non-recourse. The borrower “shall have no personal liability for payment of the outstanding loan balance,” and the lender may enforce the debt “only through sale of the property.”

The IRS treats reverse mortgage payments as loan advances: “the amount you receive isn’t taxable.” It adds that accrued reverse mortgage interest generally “isn’t deductible.”

Eligibility: age 62 and how much you can borrow

24 CFR 206.33 states: “The youngest borrower shall be 62 years of age or older at the time of loan closing.”

HUD lists three factors that set the amount available:

• the age of the youngest borrower or eligible non-borrowing spouse;
• the current interest rate;
• the lesser of the appraised value, the HECM FHA mortgage limit or the sales price.

The HECM maximum claim amount rises from $1,209,750 in 2025 to $1,249,125 for FHA case numbers assigned on or after January 1, 2026. HUD says this limit “applies to all areas,” including Alaska, Hawaii, Guam and the U.S. Virgin Islands. A HECM can also be used to buy a primary residence if the buyer pays the difference in cash.

Funds can be taken in several ways under 24 CFR 206.19:

The counseling requirement

Counseling comes before the application. Under 24 CFR 206.41, “The borrower, any Eligible or Ineligible Non-Borrowing Spouse, and any non-borrowing owner must receive counseling.” The lender must give a list of approved HECM counselors at first contact.

Handbook 4000.1 requires counseling from a HUD-roster counselor “before processing the loan application or obtaining an FHA case number.” The counseling certificate “remains valid for a period of 180 Days.” HUD’s counselor line is (800) 569-4287. HUD also warns about scam artists who charge “thousands of dollars for information that is free from HUD.”

The non-borrowing spouse

A non-borrowing spouse is married to the borrower but is not on the loan. Federal rules let an Eligible Non-Borrowing Spouse stay in the home after the last borrower dies. This “Deferral Period” postpones the due date.

To qualify under 24 CFR 206.55, the spouse must:

• have been the borrower’s spouse at closing and for the rest of the borrower’s lifetime;
• be named as an Eligible Non-Borrowing Spouse in the loan documents;
• have occupied, and keep occupying, the home as a principal residence.

After the borrower’s death, the spouse has 90 days to establish legal ownership or “other ongoing legal right to remain for life in the property.” The spouse must keep meeting the loan obligations, such as property charges. During the Deferral Period, no new loan disbursements are made. A spouse who did not qualify at closing cannot qualify later.

When the loan becomes due

Under 24 CFR 206.27, the balance becomes due and payable in full when:

• a borrower dies and the home is not the principal residence of a surviving borrower, unless a Deferral Period applies;
• the borrower conveys all title and no other borrower keeps title;
• the home stops being the principal residence of a borrower, for reasons other than death;
• a borrower is absent “for a period of longer than 12 consecutive months” because of illness, and no other borrower lives there;
• property charges are not paid, or another loan obligation is not met.

HUD notes that borrowers may stay “as long as property taxes and homeowner’s insurance are kept current.”

Once the loan is due, the borrower, spouse, estate or heirs get 30 days from the lender’s notice to act. Under 24 CFR 206.125, they can pay the balance in full or sell the home. The minimum sale price set by HUD notice “shall not exceed 95 percent of the appraised value.”

For other ways to use home equity, see refinancing. For appraisal costs, see home appraisal cost. For the FHA program in general, see FHA loans.